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The Economic Effects of Oil Prices Shocks on the UK Manufacturing and Services Sectors

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  • Francesco Guidi

Abstract

: This paper investigates the relationship between changes in oil prices and the UK s manufacturing and services sectors performances. Only a few studies have been conducted at the sector level; the goal of this paper is to contribute in that direction. In a more detailed analysis, three sets of Vector Autoregressive (VAR) models are employed using linear and nonlinear oil price specifications among several key macroeconomic variables. From the linear oil price specification VAR model, the impulse response function reveals that oil price movement causes positive effects in both the output of manufacturing and services sectors. The variance decomposition shows that oil prices are quite important as a cause of the variance of the UK services sector output, while they do not have such a large role in the variance of the UK s manufacturing output. From the asymmetric specification, it has been found that positive oil price changes determine a consistent contraction in manufacturing output, while the services sector does not seem to be affected by the increases. Alternatively, negative oil price changes show that manufacturing output does not increase much despite a decrease in oil prices. The services sector is much more affected by oil prices decreases than increases. Finally, considering the Net Oil Price Increase (NOPI) specification, it has been found that the manufacturing sector is much more affected by oil price changes than the services sector.

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Bibliographic Info

Article provided by IUP Publications in its journal The IUP Journal of Applied Economics.

Volume (Year): IX (2010)
Issue (Month): 4 (October)
Pages: 5-34

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Handle: RePEc:icf:icfjae:v:09:y:2010:i:4:p:5-34

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Cited by:
  1. Maria-Dolores, Ramon & José Rodolfo, Morales, 2012. "The Natural Resource Curse: An Analysis of the Dutch Case based on Sectoral Economies of Scale," UMUFAE Economics Working Papers 26673, DIGITUM. Universidad de Murcia.
  2. Stephen J. Knop & Joaquin L. Vespignani, 2014. "The sectorial impact of commodity price shocks in Australia," CAMA Working Papers 2014-19, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Alom, Fardous, 2011. "Economic Effects of Oil and Food Price Shocks in Asia and Pacific Countries: An Application of SVAR Model," 2011 Conference, August 25-26, 2011, Nelson, New Zealand 115346, New Zealand Agricultural and Resource Economics Society.
  4. Yýlmaz BAYAR & Cuneyt KILIC, 2014. "Effects of Oil and Natural Gas Prices on Industrial Production in the Eurozone Member Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 4(2), pages 238-247.

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