• Management Science and Financial Engineering
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• v.14 no.2
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• pp.105-118
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• 2008

There are many debates on the topic of the relationship between oil prices and economic growth. Through the repeated processes of conformations and contractions on the subject, two main issues are developed; one is how to define and drive oil shocks from oil prices, and the other is how to specify an econometric model to reflect the asymmetric relations between oil prices and output growth. The study, thus, introduces the unobserved component model to pick up the oil shocks and a first-order Markov switching model to reflect the asymmetric features. We finally employ unique oil shock variables from the stochastic trend components of oil prices and adapt four lags of the mean growth Markov Switching model. The results indicate that oil shocks exert more impact to recessionary state than expansionary state and the supply-side oil shocks are more persistent and significant than the demand-side shocks.

• Environmental and Resource Economics Review
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• v.19 no.2
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• pp.215-242
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• 2010

This study constructs a bayesian neoclassical DSGE model that applies oil usage. The model includes technology shocks, oil price shocks, and shocks to energy policies as exogenous driving forces. First, this study aims to analyze the roles of these exogenous shocks in the Korean business cycle. Second, this study examines the effects of long-term changes in the energy consumption structure, including the reduction in oil use as a share of energy consumption and improvement in oil efficiency. In the case of oil price shocks, results show that these shocks exert recessionary pressure on the economy in line with those obtained in the previous literature. On the other hand, shocks to energy policies, which reduce oil consumption per capital, result in opposite consequences to oil price shocks, decreasing oil consumption. Also, counterfactual exercises show that long-term changes in the energy consumption structure would mitigate the contractionary effects of oil price shocks.

• Environmental and Resource Economics Review
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• v.27 no.3
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• pp.495-520
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• 2018

Because of structural changes in the international oil market and the economy, it is widely recognized that the impact of oil shocks on the economy has weaken since the mid-1980s. This study tries to examine the validity of the recent perception about the relationship between oils shocks and the economy, estimating the time-varying effects of oil shocks on the Korean economy. The results show that the dynamic effects of oil shocks normalized to a one standard deviation has been relatively constant, in contrast to the recent perception and a number of existing studies. In addition, because the shape of impulse response functions at each point in time spanning from 1984:II to 2017:IV has not been changed significantly, it seems that the propagation mechanism of oil shocks also has not been substantially altered. These findings indicate that even though structural changes of the economy, such as the reduction in the share of oil consumption and the spread of high-efficiency energy technologies, have been rapidly progressed, it is not still enough to offset the negative effects of oil shocks. Rather, it seems that the recent perception about the shrinking effects of oil shocks is mainly due to the assumptions that do not reflect changes in the size of oil shocks. In particular, this problem appears more pronounced in the case of the typical a one standard deviation increase oil shock under homoskedasticity assumption, which is widely adopted in the most VAR analyses. Therefore, in estimating the effects of oil shocks on the economy, it is important to specify the correct model and normalization method, to reflect changes in the size of oil shocks.

• The Journal of Asian Finance, Economics and Business
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• v.8 no.12
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• pp.295-303
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• 2021

The aim of this study is to analyze the effects of oil prices on economic growth and exchange rate in Saudi Arabia during the period 1980-2020. For this purpose, the linear and nonlinear ARDL models are estimated. The linear ARDL model shows that the oil price and economic growth are cointegrated. Moreover, the two variables have a significant positive association in the long run. However, the oil price has no significant impact on the exchange rate. When estimating the nonlinear ARDL model, it has been shown that oil price is only cointegrated with economic growth but not with the exchange rate. The estimation of nonlinear effects using the nonlinear ARDL model shows that economic growth is affected by both positive and negative oil shocks in the long run. However, the impact of positive shocks is higher than those of negative shocks. Moreover, results show that the short-run effects of positive and negative oil shocks are not statistically significant. Regarding the exchange rate, our results show that the effects of positive and negative oil shocks are not statistically significant. Consequently, this study concludes that the oil price has an asymmetric effect on economic growth in Saudi Arabia, but not on the exchange rate.

• Environmental and Resource Economics Review
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• v.29 no.2
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• pp.171-194
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• 2020

We revisit the impact of oil shocks on the Korean economy and examine how this impact varies depending on a business cycle. First, we estimate the probability of a recession through a logistic probability distribution, and correct the probability to match business cycles announced by the Korea National Statistical Office. We set up a STVAR model to analyze the response of macroeconomic variables to oil shocks according to business cycles. We find that oil shocks during the recession have a negative effect on GDP in the mid- and long-term, but during the expansion, GDP does not show a statistically significant response to oil shocks. We presume that this finding is associated with the factors of both the increase in demand for consumption and the increase in current account during the economic boom. Also, we find that the impact of oil shocks on the price level was also observed differently in terms of the persistence of inflation by business cycle. These results highlight the importance of an application of a regime switching model, which has been widely used in energy economics in recent years.

• The Journal of the Convergence on Culture Technology
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• v.4 no.3
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• pp.93-98
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• 2018

The article studies macroeconomic effects of the oil shock for Korea, which is a representative emerging economy of Asia and a small open economy. This article analyzed the macroeconomic effects of oil shocks in terms of demand and supply. In the case of Korea, oil price shocks different responds depending on factors of shock. Oil supply shock have led to a decline in industrial activity and interest rate, and oil specific demand shock have shown the greatest increase in interest rate relative to other oil price shocks. In addition, oil demand shock driven by economic activity showed that the comsumer price and the exchange rate are the largest compared to the oil shock caused by other factors. Therefore, policy makers will need to identify the source of the oil shock.

• Journal of the Korean Operations Research and Management Science Society
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• v.7 no.1
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• pp.17-29
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• 1982

This paper is concerned with the application of the intervention analysis to the wholesale Trice index of Korea. There were four big shocks on the WPI during the last two decades, which were caused by the series of oil price hikes and changes in the foreign exchange rate. Intervention analysis of these multiple shocks revealed the nature and causalities of each shocks to the general price level of Korea.

• The Journal of Asian Finance, Economics and Business
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• v.9 no.3
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• pp.33-42
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• 2022

Oil prices have become more volatile as a result of global economic contraction and control measures. Before and during the COVID-19 crisis, this study examines the relationship between oil price swings and daily stock returns in the power sector. The impact is investigated using a panel Vector Autoregressive (VAR) model. Granger causality tests are used to see if oil prices are effective in predicting returns. The dynamic impact of supply shocks is studied using Impulse Response Functions (IRFs). From January 2011 to May 2021, the study used daily data from all listed power sector enterprises on the Pakistan stock exchange. To investigate the differences in reactions between the Pre-COVID and COVID eras, the sample was separated into two groups. Oil shocks are inversely associated with daily firm stock returns. The conclusions are further supported by the lack of impact of stock prices on oil prices. The relationship, however, deteriorates during the COVID pandemic. We could not uncover any evidence of a significant relationship. In developing countries that rely on oil imports, the study sheds light on the utility of oil price shocks in daily stock return predictions.

• The Journal of Industrial Distribution & Business
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• v.8 no.7
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• pp.7-12
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• 2017

Purpose - This research examines the short-run and long-run effect of external shocks (oil price and exchange rate) on domestic food price in Indonesia. Research design, data, and methodology - Three variables are used in this research. The variables are food price index, Rupiah's exchange rate of Indonesia, and crude oil price from 1998 until 2015 using Vector Error Correction Model (VECM). Results - The increasing of oil price and the depreciation of Rupiah's rate push the domestic food price in long-run, but do not impact significantly in short- term. The response of food price to oil prices shock and exchange rate shock are positive and persistent throughout the entire sample period. The exchange rate and oil price shocks have a small proportion explaining for the fluctuations of food price index but increasing over time. Conclusions - The policymaker should concern on solving the problem of oil price increase and depreciation of exchange rate on Indonesia's food price as they are important factors that can affect the price stability. The government should not rely on food imports because the price is strongly influenced by the movements in the exchange rate.

• Asia-Pacific Journal of Business
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• v.13 no.2
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• pp.39-50
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• 2022

Purpose - The purpose of this study is to examine how Korea's macroeconomic factors, such as GDP, CPI, Export, Import, Unemployment rate and USD/KRW exchange rate, are affected by the oil price shocks. Design/methodology/approach - This study used monthly and quarterly time-series data of each variable for the period 1983 to 2022, consisting of two sub-periods, to employ Granger causality test and GARCH method in order to identify the role of the oil price movement in macroeconomic factors in Korea. Findings - Korea's currency rate to the US dollar is negatively correlated with the price change of crude oil while the GDP change is positively correlated with the price change of crude oil with strong relationship between Export and Import in particular. The exchange rate and GDP growth are believed to be not correlated with the oil price change for the pre-GFC period. According to the Granger causality test, the price change in crude oil has a causal impact on CPI, Export and Import while other factors are relatively slightly affected. Transmission effect from the oil price to Export is found and there also exists volatility spillover from oil price to economic variables under examination. Comparing two sub-periods, CPI and Export volatility responds negatively to shocks in the oil price for the pre-GFC period while volatility of CPI and Unemployment reacts positively to the oil price shocks for the post-GFC period. Research implications or Originality - The findings of this study could be helpful for both domestic and international investors to build their portfolio for the risk management since rising WTI price can be interpreted as a result of global economic growth and ensuing increase in the worldwide demand of the crude oil. Consequently, the national output is expected to increase and the currency is also expected to be strong in the long run.