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The impact of Oil Price and Oil Price Fluctuation on Growth Exports and Inflation in Pakistan

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  • Hasanat Shah, Syed
  • Li, Jun Jiang
  • Hasanat, Hafsa
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    Abstract

    In this study we employed the ARDL bound test in order to detect cointegration relation of oil price and oil price fluctuation with GDP, exports and inflation in Pakistan. Our results confirmed cointegration among the variables when GDP was considered as dependent variable, while in case of inflation as responding variable, the long run relation among the variables are confirm only when oil price was replaced with oil price fluctuations as an explanatory variable. Applying VECM technique, we confirmed that causal link is running from oil price and oil price fluctuation to GDP and inflation. We could not detect causality running from oil prices and oil price fluctuation to exports or vice versa. Finally the augmented granger causality verified our findings of causal relation running from oil price and oil price fluctuation to GDP and Inflation both in combination with other variables as well as individually. We found that oil price fluctuation compared to oil prices drastically and asymmetrically affect the macro-economy of Pakistan.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52560.

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    Date of creation: 03 Nov 2013
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    Handle: RePEc:pra:mprapa:52560

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    Keywords: Oil Price; Cointegration; Growth; Exports; Inflation; Granger Causality;

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    1. Bernanke, Ben S, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 85-106, February.
    2. Zapata, Hector O & Rambaldi, Alicia N, 1997. "Monte Carlo Evidence on Cointegration and Causation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(2), pages 285-98, May.
    3. Darby, Michael R, 1982. "The Price of Oil and World Inflation and Recession," American Economic Review, American Economic Association, vol. 72(4), pages 738-51, September.
    4. Davis, Steven J. & Haltiwanger, John, 2001. "Sectoral job creation and destruction responses to oil price changes," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 465-512, December.
    5. Jimmy Ran & JanP. Voon & Guangzhong Li, 2010. "How Do Oil Price Shocks Affect A Small Non-Oil Producing Economy? Evidence From Hong Kong," Pacific Economic Review, Wiley Blackwell, vol. 15(2), pages 263-280, 05.
    6. François Lescaroux & Valérie Mignon, 2008. "On the Influence of Oil Prices on Economic Activity and Other Macroeconomic and Financial Variables," Working Papers 2008-05, CEPII research center.
    7. Gisser, Micha & Goodwin, Thomas H, 1986. "Crude Oil and the Macroeconomy: Tests of Some Popular Notions: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 95-103, February.
    8. Joao Tovar Jalles, 2009. "Do Oil Prices Matter? The Case of a Small Open Economy," Annals of Economics and Finance, Society for AEF, vol. 10(1), pages 65-87, May.
    9. Du, Limin & Yanan, He & Wei, Chu, 2010. "The relationship between oil price shocks and China's macro-economy: An empirical analysis," Energy Policy, Elsevier, vol. 38(8), pages 4142-4151, August.
    10. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
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