Abstract
AbstractIn this work, we provide an analysis over the period 1999–2015 of the effects of oil shocks on prices and GDP in a group of small Euro‐area economies. The group includes Austria, Belgium, Finland, Greece, Ireland, Italy, Netherlands, Portugal and Spain. In order to characterise the macroeconomic outcomes of movements in oil prices, we adopt the structural vector autoregression (VAR) methodology. We find that under the European Monetary Union (EMU), oil price shocks have been important drivers of business cycle fluctuations in almost all these countries. Moreover, an increase in oil prices produces significant recessionary effects in all the countries included in the investigation. Thus, although there are different sizes in the responses of output in the investigated countries, our main conclusion is that despite the structural changes experienced by the European economies in the last decades, oil prices still matter for these countries. In the light of these results, we also stress some important challenges for the conduct of monetary policy in the Euro area.
Highlights
Recent years have experienced, once more, a large turmoil in the oil market
In this paper we investigate the macroeconomic outcomes of oil shocks in a group of small open Euro-area countries in the European Monetary Union (EMU) period
Our findings show that oil price innovations transfer their effects on the consumer price index (CPI) very rapidly in the Euro area
Summary
Once more, a large turmoil in the oil market. For, during the second semester of 2014 oil was still being sold at 110 dollars per barrel but by the end of 2015 the same commodity had lost more than 60 percent of its previous value and was traded at the minimum of 40 dollars per barrel. These countries include Austria, Belgium, Finland, Greece, Ireland, Italy, Netherlands, Portugal and Spain. The negative consequences on GDP come with some more delay but they are rather persistent Another important finding concerns the notable degree of heterogeneity in the responses of GDP in the Eurozone countries, since three years after a 10 percent increase in the price of oil, Austria and Belgium show a reduction of GDP, respectively, of 0.14 and 0.23 percentage points, whereas the same appreciation seems to be a more severe problem for Greece (1.63 percent), Ireland (-1.13 percent), Spain (-1.40 percent) and Portugal (-0.52 percent).
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