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Sectoral and aggregate response to oil price shocks in the Colombian economy: SVAR and Local Projections approach

Author

Listed:
  • Neville Francis

    () (University of North Carolina)

  • Sergio Restrepo-Angel

    () (Banco de la República de Colombia)

Abstract

We employ Structural Vector Autoregressive (SVAR) and Jordà’s (2005) Local Projection approaches to analyze the impact of a shock to international oil prices on the aggregate economy and three sectoral activities in Colombia: Agriculture, Mining and Industry. As an oil producer and exporter, this analysis is relevant due to the importance of the oil sector for Colombia’s economy. Using data from 2000:Q1 to 2017:Q3, our results show that a positive shock to the price of oil increases Gross Domestic Product, lowers risk perception, appreciates the exchange rate, and leads to the adoption of contractionary monetary policy. An inflation-targeting scheme with flexible exchange rate makes both inflation and Foreign Direct Investment (FDI) non-responsive to the shock. Results at the sectoral level are mixed. Agriculture’s FDI, production and Producer Price Index (PPI) are unaffected by the shock. Industry’s production falls between the second and fifth quarters after the shock, with no significant responses in its PPI and FDI. Finally, the FDI and PPI respond positively in the Mining sector. **** RESUMEN: Usando Vectores Autorregresivos Estructurales (SVAR) y proyecciones locales (Jordà’s (2005)) analizamos el impacto de choques temporales no anticipados en los precios del petróleo sobre el agregado de la economía y tres sectores: agricultura, minería e industria. Dada su condición exportadora de petróleo, el presente análisis cobra especial importancia en Colombia. Usando datos desde 2000:T1 a 2017:T3, los resultados muestran que un choque positivo al precio del petróleo incrementa el Producto Interno Bruto (PIB), disminuye la percepción de riesgo internacional, aprecia la tasa de cambio e induce la adopción de una política monetaria contractiva. El esquema de inflación objetivo con tipo de cambio flexible hace que tanto la inflación como la inversión extranjera directa (IED) no respondan de manera significativa al choque. A nivel sectorial se presentan resultados mixtos. El sector agrícola no presenta impactos significativos en IED, PIB y en los precios al productor (IPP). En el sector industrial, el PIB disminuye entre el segundo y el quinto trimestre luego de recibir el choque, con respuestas no significativas en el IPP e IED. Finalmente, en el sector minero tanto la IED como el IPP responden de manera positiva.

Suggested Citation

  • Neville Francis & Sergio Restrepo-Angel, 2018. "Sectoral and aggregate response to oil price shocks in the Colombian economy: SVAR and Local Projections approach," Borradores de Economia 1055, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:1055
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    References listed on IDEAS

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    More about this item

    Keywords

    monetary policy; oil prices; local projections; asymmetries; política monetaria; precios del petróleo; proyecciones locales; asimetrías.;

    JEL classification:

    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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