The response of oil-importing and oil-exporting countries’ macroeconomic aggregates to crude oil price shocks: some international evidence

Abstract

Fluctuations in crude oil prices exert substantial economic influence, necessitating adept responses and strategic policy formulations to mitigate potential adverse consequences. Kilian has emphasized the heterogeneous nature of oil price shocks, wherein price rises can yield varied effects contingent upon underlying determinants. Consequently, it is imperative for investors, economists, and policymakers to disentangle real price shocks and assess their impact on macroeconomic aggregates. This study employs a two-stage approach grounded in a structural vector autoregressive (SVAR) model, inspired by Kilian’s framework, to examine and contrast the repercussions of various crude oil price shocks on the actual Gross Domestic Product (GDP) and Consumer Price Index (CPI) in countries that are either net importers or exporters of oil. Our empirical results reveal that variations in real oil prices are more substantially influenced by shocks due to aggregate demand and precautionary demand, as opposed to shocks originating from the oil supply side. Additionally, aggregate demand shocks lead to significant GDP surges for most oil-importing countries and all oil-exporting countries, while only leading to continuous CPI increases in oil-importing countries. Precautionary demand shocks initially boost GDP in oil-exporting countries but lead to GDP reductions in oil-importing countries. Precautionary demand shocks sustain CPI increases in the oil-importing countries, though with variations in significant durations, but have mixed effects in oil-exporting countries, with significant CPI increases observed in Canada and Norway. Concerning the implications for policymakers and investors, the findings underscore the importance of considering variations in response patterns to crude oil price shocks based on their drivers and the country’s status as an oil importer or exporter.