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Macroeconomic Response of Disentangled Oil Price Shocks: Empirical Evidence from Japan

Author

Listed:
  • Mahmood -ur- Rahman

    (GSICS, Kobe University, Japan)

  • Zakaria Zoundi

    (GSICS, Kobe University, Japan)

Abstract

Deploying the extended version of the structural VAR framework of Killian (2009), this paper projects the dynamic effects of oil price shocks on some major macroeconomic aggregates of the 3rd largest energy consuming economy, Japan for the timespan 1996M1-2015M4. For this analysis the innovations are derived from both global oil and foreign exchange markets. Decomposing the oil price shocks into various components, this paper portrays a historical evolution of the structural shocks. The results convey that the macroeconomic components respond differently depending upon the nature of the oil price shock indicating significant variations in transmission mechanisms. Empirically, the non-existing impact of oil supply shocks on the components of Japanese national income identity along with the prominence of global demand and oil market specific speculative shocks have been discovered. Moreover, this research reestablishes the insulated nature of the Japanese economy. At the macro level, the exchange rate shocks are found to be insignificant to generate any response. Gradual reliance on international trade, which is susceptible to external shocks needs to be considered for macro stability.

Suggested Citation

  • Mahmood -ur- Rahman & Zakaria Zoundi, 2018. "Macroeconomic Response of Disentangled Oil Price Shocks: Empirical Evidence from Japan," Economics Bulletin, AccessEcon, vol. 38(4), pages 2240-2253.
    • Handle: RePEc:ebl:ecbull:eb-18-00218
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    References listed on IDEAS

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    2. Pham, Thai-Binh & Sala, Hector, 2019. "The macroeconomic effects of oil price and risk-premium shocks on Vietnam: Evidence from an over-identifying SVAR analysis," MPRA Paper 96873, University Library of Munich, Germany, revised 05 Jul 2019.

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    More about this item

    Keywords

    Oil shocks; Exchange rate; Japanese economy; Structural VAR;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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