IMPACT OF OIL PRICE SHOCKS ON KEY ECONOMIC VARIABLES: P-SVAR ANALYSIS

Abstract

The study investigates the impact of oil price shocks on real GDP, real exchange rate, inflation and unemployment in Nigeria, Venezuela, Algeria, Angola and the United Arab Emirates. The study analyses the panel data for the period of 1985-2017 using P-SVAR model. The findings of the study indicate that shocks in oil price are significantly associated with changes in real GDP and inflation. The study also reveals the shocks in the price of oil do not lead to significant changes in the real exchange rate and unemployment. The result of the impulse response of the P-SVAR indicates changes in the oil prices have a significant impact on the changes in real GDP and inflation across the panel. However, the responses of oil price innovation to unemployment and the real exchange rate are found to be insignificant. Therefore, the study recommends that OPEC should put more control measures to sustain stability in the international oil market. In addition, there is a need for oil exporting countries to provide a policy framework that will translate fortunes from oil price shocks towards improving other real sectors of the economies, the shocks is favourable. There is also a need for the oil exporting countries to put in place serious fiscal and monetary policies that will checkmate the inflationary impact when the price is unfavorable at the international oil market.