IDEAS home Printed from https://ideas.repec.org/a/bla/opecrv/v38y2014i2p184-215.html
   My bibliography  Save this article

Revisiting the macroeconomic effects of oil and food price shocks to Pakistan economy: a structural vector autoregressive (SVAR) analysis

Author

Listed:
  • Muhammad Arshad Khan
  • Ayaz Ahmed

Abstract

This study examines the impact of global food and oil price shocks and their transmission channels to the selected macroeconomic variables including the inflation rate, output, money balances, interest rate and real effective exchange rate for Pakistan using monthly data over the period 1990M1–2011M7. An empirical analysis is carried out by employing a structural vector autoregressive framework to identify different structural shocks and explore the relative contribution of oil and food price shocks. Generalised impulse response functions and generalised forecast variance decompositions are employed to track the impact of oil and food price shocks on Pakistan's economy. The results suggest that oil price shocks negatively affect industrial production, appreciates real effective exchange rate and positively affect inflation, either the shocks are positive or negative. Only the oil and food price shocks have asymmetric impact on the short-term interest rate. In contrast, following the positive (or negative) food price shock, industrial output, interest rate and inflation rate respond positively. However, the variation in interest rate due to food price shock is relatively larger than that of oil price shocks. Generalised impulse response functions reveal that real effective exchange rate is the most important source of disturbances following either oil price or food price shocks. Generalised forecast variance decompositions analysis also supports the findings based on generalised impulse response functions. The results clearly reveal that oil and food price shocks significantly affect output, short-term interest rate, inflation rate and the real effective exchange rate. However, among all, real effective exchange rate has been a dominant source of variation in Pakistan. This implies that supply-side and demand-side disturbances originated by external shocks are the major sources of variation in output and inflation in Pakistan.

Suggested Citation

  • Muhammad Arshad Khan & Ayaz Ahmed, 2014. "Revisiting the macroeconomic effects of oil and food price shocks to Pakistan economy: a structural vector autoregressive (SVAR) analysis," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 38(2), pages 184-215, June.
    • Handle: RePEc:bla:opecrv:v:38:y:2014:i:2:p:184-215
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/opec.12020
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ayhan KAPUSUZOGLU & Xi LIANG & Nildag Basak CEYLAN, 2018. "Macroeconomic impacts of global food price shocks on the economy of Turkey," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 64(11), pages 517-525.
    2. Antonia C. Settle, 2018. "The Informal Economy as a Site of Liquidity: Pakistan's Land Market," Development and Change, International Institute of Social Studies, vol. 49(5), pages 1291-1313, September.
    3. Thomas Theobald & Peter Hohlfeld, 2017. "Why have the recent oil price declines not stimulated global economic growth?," IMK Working Paper 185-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Muhammad Arshad Khan & Muhammad Iftikhar Ul Husnain & Qaisar Abbas & Syed Zulfiqar Ali Shah, 2019. "Asymmetric effects of oil price shocks on Asian economies: a nonlinear analysis," Empirical Economics, Springer, vol. 57(4), pages 1319-1350, October.
    5. Muhammad Arshad Khan & Saima Nawaz, 2018. "Does Pak-Rupee Exchange Rate Respond to Monetary Fundamentals? A Structural Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 57(2), pages 175-202.
    6. Gilles Dufrénot & William Ginn & Marc Pourroy, 2023. "ENSO Climate Patterns on Global Economic Conditions," AMSE Working Papers 2308, Aix-Marseille School of Economics, France.
    7. Adam, P. & Rianse, U. & Harafah, Ĺ. M. & Cahyono, E. & Rafiy, M., 2016. "A Model of the Dynamics of the Effect of World Crude Oil Price and World Rice Price on Indonesia’s Inflation Rate," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 8(1), pages 1-10, March.
    8. Rostin Rostin & Abd Azis Muthalib & Pasrun Adam & Muh. Nur & Zainudin Saenong & La Ode Suriadi & Jamal Nasir Baso, 2019. "The Effect of Crude Oil Prices on Inflation, Interest Rates and Economic Growth in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 9(5), pages 14-19.
    9. Kashif Zaheer Malik & Haram Ajmal & Muhammad Umer Zahid, 2017. "Oil Price Shock and its Impact on the Macroeconomic Variables of Pakistan: A Structural Vector Autoregressive Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 7(5), pages 83-92.
    10. Syafrida Hani & Elizar Sinambela, 2021. "Indonesia s Bank Response of Interest Rates to the Prices of World Crude Oil and Foreign Rates of Interest," International Journal of Energy Economics and Policy, Econjournals, vol. 11(1), pages 558-564.
    11. Mohd Syafiq Sabri & Norlin Khalid & Abdul Hafizh Mohd Azam & Tamat Sarmidi, 2022. "Impact Analysis of the External Shocks on the Prices of Malaysian Crude Palm Oil: Evidence from a Structural Vector Autoregressive Model," Mathematics, MDPI, vol. 10(23), pages 1-22, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:opecrv:v:38:y:2014:i:2:p:184-215. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/%28ISSN%291753-0237 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.