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Oil Price-Macroeconomic Relationship in Australia and New Zealand: Application of a Hidden Cointegration Technique

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  • Fardous Alom

    (Department of Economics, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia)

Abstract

This study examines the relationships between oil prices and macroeconomic variables such as industrial/manufacturing production index, consumer price index, real effective exchange rates, lending rates and stock price index in Australia and New Zealand within the framework of hidden cointegration technique and crouching error correction model (CECM) of Granger and Yoon (2002) using updated data; the study hopes to contribute to the literature on oil price-macroeconomic relationship in the Asia Pacific region. The results suggest a weak or no evidence of long-run relationships between crude oil prices and macroeconomic variables in these countries with few exceptions. Positive changes in crude oil prices are found to influence the increase in consumer price indices in Australia and negative changes in crude oil prices found to be responsible for the long-run relationships with decrease in stock price indices and interest rates. The study fails to find any convincing evidence of the long-run relationship between oil price and New Zealand macroeconomic variables.

Suggested Citation

  • Fardous Alom, 2014. "Oil Price-Macroeconomic Relationship in Australia and New Zealand: Application of a Hidden Cointegration Technique," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 6(2), pages 105-128, July.
    • Handle: RePEc:umk:journl:v:6:y:2014:i:2:p:105-128
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    More about this item

    Keywords

    Australia; Cointegration; Macroeconomic; New Zealand; Oil price;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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