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The Effect of Oil Price Shocks on the Czech Economy

  • Kamil Dybczak
  • David Vonka
  • Nico van der Windt

In the course of 2002 up to the end of 2007, very steep growth of oil prices, but no remarkable slowdown of either the world economy or the Czech economy, was observed. This phenomenon raises a question about the impact of oil prices on modern economies. Analyzing the available data we can conclude that notwithstanding the full dependence of the Czech economy on oil imports, its overall dependence on imported energy sources is relatively low. Compared to the EU15 level the energy intensity of the Czech economy is quite high. Nevertheless, further improvements in this area are expected. Furthermore, the appreciation of CZK and the set-up of the tax system significantly reduced the volatility of the consumer oil price between 2002 and 2007. Using a structural CGE model we quantify the impact of oil price changes on the Czech economy and demonstrate that it is not dramatic despite the oil price turmoil in the years 2000 to the end of 2007. We find that a 20% increase in the CZK oil price tends to decrease the GDP level by 1:5% and 0:8% in the short and long run, respectively. Short-run annual GDP growth decreases by 0:3 p.p. Concerning prices, inflation would accelerate by around 0:4 p.p. per annum in the short run.

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Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2008/5.

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Date of creation: Dec 2008
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Handle: RePEc:cnb:wpaper:2008/5
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  1. Michael P. Keane & Eswar S. Prasad, 1991. "The employment and wage effects of oil price shocks: a sectoral analysis," Discussion Paper / Institute for Empirical Macroeconomics 51, Federal Reserve Bank of Minneapolis.
  2. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
  3. A Carruth & M Hooker & A Oswald, 1994. "Unemployment, Oil Prices and the Real Interest Rate: Evidence from Canada and the UK," CEP Discussion Papers dp0188, Centre for Economic Performance, LSE.
  4. Douwe Kingma & Wim Suyker, 2004. "FAQs about oil and the world economy," CPB Memorandum 104, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Tibor Hledik, 2003. "Modelling the Second-Round Effects of Supply-Side Shocks on Inflation," Working Papers 2003/12, Czech National Bank, Research Department.
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