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Oil Price Shocks and Long Run Price and Import Demand Behavior

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  • Frank Kleibergen
  • Herman van Dijk
  • Jean-Pierre Urbain

Abstract

The effect which the oil price time series has on the long run properties of Vector AutoRegressive (VAR) models for price levels and import demand is investigated. As the oil price variable is assumed to be weakly exogenous for the long run parameters, a cointegration testing procedure allowing for weakly exogenous variables is developed using a LU\\ decomposition of the long run multiplier matrix. The likelihood based cointegration test statistics, Wald, Likelihood Ratio and Lagrange Multiplier, are constructed and their limiting distributions derived. Using these tests, we find that incorporating the oil price in a model for the domestic or import price level of seven industrialized countries decreases the long run memory of the inflation rate. Second, we find that the results for import demand can be classified with respect to the oil importing or exporting status of the specific country. The result for Japan is typical as its import price is not influenced by gnp in the long run, which is the case for all other countries.
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  • Frank Kleibergen & Herman van Dijk & Jean-Pierre Urbain, 1999. "Oil Price Shocks and Long Run Price and Import Demand Behavior," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 51(3), pages 399-417, September.
    • Handle: RePEc:spr:aistmt:v:51:y:1999:i:3:p:399-417
    DOI: 10.1023/A:1003978303477
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    1. Groen, Jan J J & Kleibergen, Frank, 2003. "Likelihood-Based Cointegration Analysis in Panels of Vector Error-Correction Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(2), pages 295-318, April.

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