Abstract
Oil is one of the world's most widely used factor inputs in the manufacture of goods and services. Generally speaking, we believe that oil-dependent sectors will be more sensitive to shocks in oil prices. This paper aims to evaluate the response of different sectors as an emerging market to oil price shocks in Indonesia. The monthly data is used from January 2000 to February 2019. This study uses the Vector Auto-Regressive (VAR) model and the Impulse Reaction Function looks in-depth. The results show that shocks in oil prices can be significantly negative or positive for Indonesia's various sectors. First, we find that all Indonesia's sector index has the significant impact of oil price shocks. Second, the positive impact comes from the mining sector, while the remaining industries have a negative impact due to shocks in oil prices. The practical implications of this research are very useful not only to see the impact of Indonesia's role as an emerging market and net oil importer which is for the investor in the mining area but also to others sector and regulators.Keywords: Oil prices shocks, Vector Auto-Regressive Model, Impulse Reaction FunctionJEL Classifications: Q4, M2DOI: https://doi.org/10.32479/ijeep.9477
Highlights
Oil is one of strategic commodity for the global economy
Unlike the most recent literature review focusing on the connection between oil price shocks and macroeconomic parameter, we focused on evaluating the response of oil price shocks on industry indices
Our results show that oil price shocks are important in Indonesia for each field, while the impact could be on Indonesia as a net oil importer, whether short-term or long-term
Summary
Oil is one of strategic commodity for the global economy. Previous literature from the first (Hamilton, 1983; 1996; 2003; 2009; Hooker; 1996) focused that oil fluctuations have substantial effect statistically on the economy variables such as GDP, inflation, and exchange rate. The goal of this research is to evaluate the response of different sectors to oil price shocks as an emerging market in Indonesia. Indonesia is one of emerging market in the world and one of net oil importer country. As an emerging market and a net importer of oil, Indonesia would have different reactions to oil price shocks. It is surprising that little research has been carried out on the nexus between different industry indices and oil price shocks in Indonesia . By using the latest time series, we find the impact of oil price shocks on each industry in Indonesia as an emerging market and as a net oil importer.
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