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Trade linkages and macroeconomic effects of the price of oil

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  • Korhonen, Iikka
  • Ledyaeva, Svetlana

Abstract

In this paper we assess the impact of oil price shocks on oil-producer and oil-consuming economies. VAR models for different countries are linked together via a trade matrix, as in Abeysinghe (2001). As expected, we find that oil producers (here, Russia and Canada) benefit from oil price shocks. For example, a large oil shock leading to a price increase of 50% boosts Russian GDP by about 6%. However, oil producers are hurt by indirect effects of positive oil price shocks, as economic activity in their exporter countries suffers. For oil consumers, the effects are more diverse. In some countries, output falls in response to an oil price shock, while other countries seem to be relatively immune to oil price changes. Finally, indirect effects are also detected for oil-consumer countries. Those countries, which trade more with oil producers, gain indirect benefits via higher demand from oil-producing countries. In general, the largest negative total effects from positive oil price shocks are found for Japan, China, the USA, Finland and Switzerland, while other countries in our sample seem to have fared quite well during recent positive oil price shocks. The indirect effects are negative for Russia, Finland, Germany and Netherlands.

Suggested Citation

  • Korhonen, Iikka & Ledyaeva, Svetlana, 2010. "Trade linkages and macroeconomic effects of the price of oil," Energy Economics, Elsevier, vol. 32(4), pages 848-856, July.
  • Handle: RePEc:eee:eneeco:v:32:y:2010:i:4:p:848-856
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    Keywords

    Oil Macroeconomic fluctuations Trade linkages Russia;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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