Systemic economic impacts of variation in international oil prices: The case of Colombia

Abstract

This article assesses the systemic economic impacts of oil price fluctuations on the Colombian economy though a calibrated computable general equilibrium (CGE) model for the year 2015. A simulation exercise was conducted, introducing a 1 % positive variation in commodity prices to examine the implicit elasticity of these prices in the country's economy. The results indicate an increase in gross domestic output due to higher investment and government spending. There is also a positive variation in real wages, driving household consumption, along with an increase in the basic prices of the economy. Domestic oil prices exhibited a greater degree of variation than international prices, leading to a loss of the country's external competitiveness. Consequently, economies with low diversification may become vulnerable in volatile price scenarios. The loss of competitiveness in these products can result in an expansion of the trade deficit.