Macroeconomic Impacts of Oil Price Shocks in Venezuela

The paper evaluates the effects of oil price shocks on several macroeconomic variables for the Venezuelan economy during the periods 1921-1970 and 1985-2015. Bivariate vector autoregression models are estimated to examine the links in the causal chain between the real price of oil and the macroeconomic variables of interest through a series of Granger non-causality tests. Similarly, different symmetry slope-based tests are conducted to determine whether or not there is empirical evidence supporting the view that the effects of oil price shocks on macroeconomic aggregates are asymmetric. Finally, the time profile described by an economic variable that has been hit by an oil price shock, and the importance of these shocks as a source of short-run fluctuations are analysed through the estimation of a series of impulse response functions and forecast error variance decompositions, respectively. The main findings in the paper can be summarised as follows: firstly, the predictability from real oil price to real output (and other macroeconomic variables) was found to be not significant in the period 1921-1970 while its importance has increased substantially in more recent years. Secondly, evidence of asymmetric effects of oil price shocks was found only for variables such as real output in the oil sector and investment during the years 1985-2015; unexpected oil price increases are significantly correlated with a rise in the economic variables while oil price decreases show not significant correlation. Thirdly, positive association between oil price movements and most macroeconomic variables as well as the relevance of oil price shocks as an important source of business cycle fluctuations in the economy has been observed; although significant differences are found in the responses of these variables to the shock for different time spans.