Impact of oil price volatility on macroeconomic variables: an ARDL approach

The impact of oil price shocks on the macro economy has received considerable attention for many decades. Although a majority of initial empirical studies found a significant negative influence between oil prices shocks and GDP, however more recently, empirical researches have showed an insignificant relationship between oil shocks and the macro economy. In fact, while most of the existing research applies to advanced, oil importing countries, results for oil exporting countries are expected to be different. However, this only can be ascertained empirically. Therefore, this study makes an attempt to examine the impacts of oil price shocks on an oil-exporting country such as, Russia by applying an ARDL model which has taken care of a major limitation of the conventional co-integrating tests in that they suffer from pre-test biases between the variables. The data in this study is quarterly for major macroeconomic variables such as GDP, real exchange rate, government expenditure, net exports, and inflation rate. The standard time series techniques are applied. The results showed that with the exception of net exports, other macroeconomic variables did not experience considerable changes following the oil price shocks. Therefore, by controlling the net exports, the policy makers can reduce the negative impacts of oil prices shocks on the macroeconomy of the country.