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is New Zealand's economy vulnerable to world oil market shocks?

Author

Listed:
  • Mohammad Jaforullah

    (Department of Economics, University of Otago, New Zealand)

  • Alan King

    (Department of Economics, University of Otago, New Zealand)

Abstract

We assess New Zealand’s vulnerability to oil shocks by estimating its price and income elasticities of demand for imported oil and by testing. For Granger causality between oil imports, their price and GDP. Based on data for the period 1987Q2–2012Q4, we find the short-run price and income elasticities to be statistically insignificant. However, the long-run price and income elasticity estimates are significant and equal to −0.34 and 1.61, respectively. We also find that oil imports, and to some extent oil prices, Granger-cause real GDP, indicating that the New Zealand economy is vulnerable to shocks in the world oil market.

Suggested Citation

  • Mohammad Jaforullah & Alan King, 2015. "is New Zealand's economy vulnerable to world oil market shocks?," Working Papers 1503, University of Otago, Department of Economics, revised Mar 2015.
    • Handle: RePEc:otg:wpaper:1503
    as

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    File URL: http://www.otago.ac.nz/economics/otago089971.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Oil imports; Price elasticity; Income elasticity; Granger causality; Cointegration; Vector error correction model;
    All these keywords.

    JEL classification:

    • 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
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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