WORLD OIL PRICE SHOCKS IN MACROECONOMIC ASEAN +3 COUNTRIES: MEASUREMENT OF RISK MANAGEMENT AND DECISION-MAKING A LINEAR DYNAMIC PANEL APPROACH

Anuar Sanusi,Faurani Santi Singagerda,Ahmad Zaharuddin Sani

doi:10.32479/ijeep.11249

Abstract

The increase in oil prices in the 1970s has had a quite significant impact over the decades since the rise in inflation has had an impact on hyperinflation, recession, lowered productivity and economic growth. The World Bank (2021) forecasts that oil prices will exceed US$44 per barrel in 2021 and US$50 per barrel in 2022, while several factors affect the World Bank's projections, including the persistence of economic issues in the coming years. The purpose of this paper was to empirically assess the impact of oil prices on ASEAN+3 inflation and economic growth. The framework that can be applied to linear dynamic panel data to achieve this goal is the First Difference-Generalized Moment Method (FD-GMM) estimator method. This study used panel data representing ASEAN+3 countries and annual data over the period 2011-2020. The findings of the study indicated that, over the period, increasing oil prices were associated with higher inflation, and higher economic growth in ASEAN+3. Another result was that higher inflation is related to lower economic growth. Lower and higher economic growth was related to decreased inflation. High inflation creates high costs of economic development and social prosperity, therefore that policymakers are expected to adopt policies that are not only good for the short term, but also good for the long term to establish long-term prosperity and long-term price stability. In addition, a variety of non-economic variables that affect global market price volatility should also be considered to reduce potential market risks.Keywords: oil price shock, inflation, Production Growth, economic development, econometricsJEL Classifications: E31, E42, E63, F43, F62DOI: https://doi.org/10.32479/ijeep.11249

Highlights

Energy plays an important and strategic role since it is an essential part of the circulation of the world’s economy
Each 1% increase in economic growth would result in a 1.32% decline in inflation, ceteris paribus
The average inflation and economic growth in the ASEAN+3 countries show that each growth in 3.31%

Summary

Introduction

Energy plays an important and strategic role since it is an essential part of the circulation of the world’s economy. As one of the world’s energy sources, has been the energy with the highest level of consumption for the production process relative to other sources. The impact of rising world oil prices on inflation and economic growth at the beginning of the 1970s differed from those of the 2000s. In the 1970’s, rising oil prices lead to high inflation, depression, low productivity and low or negative growth rates. The increase in oil prices in the early 2000s led to an increase in inflation, but was relatively much smaller than in the 1970s, and global economic growth remained strong (Unalmis et al, 2010; Blanchard and Riggi, 2013; Baffes et al, 2015). Study findings from (Du et al, 2010; Basher et al, 2012; Mohaddes and Pesaran, 2016) concluded that the increase in oil prices is related positively to output and inflation in China and Indonesia

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