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The Effect of Asymmetrical Relationship of Oil Price Shocks on Gross Domestic Product

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  • Zalina Zainal, Zalina

    (School of Economics, Finance and Banking Universiti Utara Malaysia 06010 UUM Sintok, Kedah MALAYSIA.)

  • Aziz, Mukhriz Izraf Azman

    (School of Economics, Finance and Banking Universiti Utara Malaysia 06010 UUM Sintok, Kedah MALAYSIA.)

  • Md. Salleh, Mohd Faisol

    (School of Economics, Finance and Banking Universiti Utara Malaysia 06010 UUM Sintok, Kedah MALAYSIA.)

Abstract

This paper revisits the asymmetrical crude oil prices-Gross Domestic Product (GDP) relationship for Malaysia and Indonesia using Hansen (2000) Threshold regression method. The empirical analysis uses quarterly data for the period of 1990 (quarter 1) until 2018 (quarter 1). The paper confirms the nonlinearities in the oil price-GDP relationship for Malaysia and Indonesia. The findings reveal that when oil prices are below USD37, oil price shocks have a negative impact on Malaysian GDP, but positively affect GDP when oil price are between USD37 to USD55. Indonesia’s GDP, on the other hand, responds favourably to changes in oil prices when they are below USD47, but negatively affects GDP when oil price exceeds USD47. Both countries’ GDP responses to oil price shocks are linked to the issues such as the degree of oil dependency, oil self-sufficiency, and government efficiency in managing revenue from the oil sector and the ease with which critical policy adjustments take place.

Suggested Citation

  • Zalina Zainal, Zalina & Aziz, Mukhriz Izraf Azman & Md. Salleh, Mohd Faisol, 2021. "The Effect of Asymmetrical Relationship of Oil Price Shocks on Gross Domestic Product," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 55(2), pages 121-135.
    • Handle: RePEc:ukm:jlekon:v:55:y:2021:i:2:p:121-135
    DOI: http://dx.doi.org/10.17576/JEM-2021-5502-10
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    More about this item

    Keywords

    Crude oil price; GDP; asymmetric; nonlinear; threshold value;
    All these keywords.

    JEL classification:

    • B27 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - International Trade and Finance
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • 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
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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