• Asia-Pacific Journal of Business
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• v.15 no.3
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• pp.385-397
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• 2024

Purpose - The purpose of this study was to analyze the dynamic relationship between oil prices and macroeconomic variables (gross domestic product, consumer price index, and interest rate). Long-run and short-run effects of oil prices on these macroeconomic variables are examined. Design/methodology/approach - The vector error correction model (VECM) is used to examine the short-run and long-term causality of oil prices, and a hierarchical Bayesian vector autoregressive model (HBVAR) is used to find the impulse of oil shock and the response of other variables. Findings - First, oil prices do not have short-term causality with macroeconomic variables, but they have long-term causality with interest rates and GDP. Second, the long-term stable relationship of oil prices and other macroeconomic variables is important to find out causality. Third, oil shock increases interest rates and decreases GDP and consumer price. Research implications or Originality - The significance of this study is a new attempt to analyze the dynamic relationship between oil prices and macroeconomic variables by linking VECM and HBVAR. Although VECM can analyze the long-term relationship and short-term dynamics between oil prices and macroeconomic variables, it was difficult to identify the transmission path of the oil price shock. HBVAR is confirmed to be flexible because it can bypass the process of selecting VAR or VECM through unit root test and cointegration analysis, and it is expected to reduce uncertainty of selecting hyperparameters.