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The Macroeconomic Effects of Oil Price Fluctuations in ASEAN Countries: Analysis Using a VAR with Block Exogeneity

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  • Vu, Tuan Khai
  • Nakata, Hayato

Abstract

We use a VAR with block exogeneity to study the effects of oil price fluctuations on the economies of six ASEAN countries. Our method has an advantage over those used in the literature in that it allows us to focus on the effects of oil shocks while avoiding making unnecessary, and often ad hoc and unrealistic, assumptions about the structure of the economies under question. We decompose the factors that drive oil prices into oil supply shocks, oil demand shocks coming from the global real economic activity and oil-market specific demand shocks. We find that, in terms of output and price variabilities, the oil importing countries such as Singapore, Thailand and the Philippines are more sensitive to the situation in the world oil market than the oil exporting countries such as Indonesia, Malaysia. We find evidence that the monetary authorities of ASEAN countries have responded to changes in oil prices due to oil-market specific demand shocks. We also find that much of the surge in world market oil prices in 2007-2008 was mainly due to global aggregate demand shocks and oil-market specific shocks, and by working through oil prices these shocks were important factors that caused the high inflation in ASEAN countries in the first half of 2008.

Suggested Citation

  • Vu, Tuan Khai & Nakata, Hayato, 2014. "The Macroeconomic Effects of Oil Price Fluctuations in ASEAN Countries: Analysis Using a VAR with Block Exogeneity," Discussion Paper Series 619, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hituec:619
    Note: First version: Feb 2014. This version: Dec 2014
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/27014/DP619.pdf
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    References listed on IDEAS

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    2. Kilian, Lutz & Lee, Thomas K., 2014. "Quantifying the speculative component in the real price of oil: The role of global oil inventories," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 71-87.
    3. Sato, Kiyotaka & Zhang, Zhaoyong & McAleer, Michael, 2011. "Identifying shocks in regionally integrated East Asian economies with structural VAR and block exogeneity," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(7), pages 1353-1364.
    4. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    5. Jean-Pierre Allegret & Cécile Couharde & Cyriac Guillaumin, 2012. "The Impact of External Shocks in East Asia: Lessons from a Structural VAR Model with Block Exogeneity," International Economics, CEPII research center, issue 132, pages 35-89.
    6. Jean-Baptiste Gossé & Cyriac Guillaumin, 2013. "Can External Shocks Explain the Asian Side of Global Imbalances? Lessons from a Structural VAR Model with Block Exogeneity," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 85-102, February.
    7. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, April.
    8. Jean-Pierre Allegret & Cécile Couharde & Cyriac Guillaumin, 2012. "The Impact of External Shocks in East Asia: Lessons from a Structural VAR Model with Block Exogeneity," International Economics, CEPII research center, issue 132, pages 35-89.
    9. Ichiro Fukunaga & Naohisa Hirakata & Nao Sudo, 2009. "The Effects of Oil Price Changes on the Industry-Level Production and Prices in the U.S. and Japan," IMES Discussion Paper Series 09-E-24, Institute for Monetary and Economic Studies, Bank of Japan.
    10. repec:cii:cepiei:2012-q4-132-2 is not listed on IDEAS
    11. Kim, Soyoung & Yang, Doo Yong, 2012. "International monetary transmission in East Asia: Floaters, non-floaters, and capital controls," Japan and the World Economy, Elsevier, vol. 24(4), pages 305-316.
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    Cited by:

    1. Muhammad Arshad Khan & Muhammad Iftikhar Ul Husnain & Qaisar Abbas & Syed Zulfiqar Ali Shah, 2019. "Asymmetric effects of oil price shocks on Asian economies: a nonlinear analysis," Empirical Economics, Springer, vol. 57(4), pages 1319-1350, October.
    2. Mustafa Kocoglu & Phouphet Kyophilavong & Ashar Awan & So Young Lim, 2023. "Time-varying causality between oil price and exchange rate in five ASEAN economies," Economic Change and Restructuring, Springer, vol. 56(2), pages 1007-1031, April.
    3. Mirzosaid Sultonov, 2017. "The impacts of the oil price fall on the exchange rates of ASEAN-5: Evidence from the 2014 oil price shock," Economics Bulletin, AccessEcon, vol. 37(1), pages 468-479.

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    More about this item

    Keywords

    oil price fluctuations; VAR; block exogeneity; ASEAN economies;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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