Do macroeconomic activities respond differently to oil price shocks? New evidence from Indonesia

Abstract

The contribution of the present article is to explicitly consider the role of supply and demand shocks in the global oil market when analyzing the nexus between oil price fluctuations and macroeconomic activities – growth, inflation, and exchange rate – in an emerging economy, specifically Indonesia. For doing this, a structural vector autoregressive (SVAR) methodology is applied to monthly observations for 1998 through 2019. We show that the timing, magnitude, and even direction of the response of Indonesia’s macroeconomy are likely to vary depending on the type of shock. We believe that this discovery provides important implications for empirical modeling and policy analysis.