Abstract
The paper investigates the asymmetric effects of oil price shocks on real economic activities in ASEAN-5 from 1991 to 2014 using an unrestricted panel Vector Auto Regressive (VAR) method. Results from the impulse response function (IRFs) show evidence of an asymmetric relationship between oil prices and economic activities. Specifically, positive oil price shock measures negatively affect output growth both in the short term and in the long term. For oil price decrease specifications, real output responds negatively in the short term before recovering to its pre-shock level in the long term. The variance decomposition analysis (VDCs) also exhibit differences between the effects of positive and negative oil price shocks on economic activities, supporting the evidence of asymmetric relationship obtain in the IRFs simulations.
Highlights
Oil plays a unique role in the world economy, and it is still true today
This paper studies the effects of oil price shocks on the real economic activity of ASEAN-5
It has focused on the relationship between oil prices and gross domestic product (GDP) growth, analysed in terms of Vector Auto Regressive (VAR) using four specifications, namely a linear model and three leading non-linear specifications proposed in the literature
Summary
Oil plays a unique role in the world economy, and it is still true today. Since oil was commercially discovered in 1859,1 there has been numerous studies conducted on oil and its relation to the economy, society, and environment. Literatures on oil price shocks on the oil-importing US economy found a statistically significant negative linear relationship with the output. These studies include Rasche and Tatom (1981), Hamilton (1983), Burbidge and Harrison (1984), among others. Later studies on the non-US economies found statistically significant oil price-output relationship (Eksi, Izgı, & Sentürk, 2011; Cavalcanti & Jalles, 2013; Ju, K., et al, 2014; Negi, 2015)
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