The Macrotheme Review A multidisciplinary journal of global macro trends ESTIMATED DSGE MODEL FOR OIL PRODUCING ECONOMY (original) (raw)
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Central Bank of Nigeria Journal of Applied Statistics, 2020
The global oil dynamics has significant implications for both oil exporting and importing small open economies. However, much of the literature on oil shocks is oriented towards advanced oil-importing economies. Micro-founded studies that explore the effects of oil shocks from the standpoint of oil-endowed emerging economies are rather sparse, compared to the preponderance of studies on developed oil importers and exporters. Thus, resulting to a consequential knowledge gap on oil price transmission mechanism and a limited appreciation of the growing policy dilemmas in these economies. The paper, therefore, sets up a new Keynesian dynamic stochastic general equilibrium (DSGE) model to study how an oil price shock impacts on macroeconomic aggregates in an oil-rich emerging economy. We consider a positive oil price shock to uncover the extent to which oil price increase is positive for the economy. The typical small open economy model is enriched with an export-oriented oil firm, a mul...
International Journal of Management, Accounting and Economics , 2022
In a world scale economy considering interlinkage and interactions between countries, economic shocks will affect various economies through channels. Meantime, the oil price is one of the most important channels. New studies show that the connection between the oil price and the world economy has numerous complications which could not be incorporated in traditional frames with only taking into consideration separated and identified oil supply and demand shocks without considering synchronicity and the source of the main shocks. Therefore it is essential to model a multi-dimensional system. The purpose of this study is to investigate the impact of oil price shocks on the major macroeconomic variables of oil-exporting countries from 1974Q1 to 2019Q4 using the global vector autoregressive (GVAR) approach. The macroeconomic variables include four domestic variables, three foreign variables and one global variable. In particular, it provides a theoretical framework for the global oil market to illustrate how multi-country approach to modeling oil markets can be used to identify country-specific oil price shocks. On the empirical side, it shows the global economic implications of oil price shocks vary considerably depending on which country is subject to the shock. The results of this study indicate that the economic consequences of a positive oil price shock are different on macroeconomic variables in oil-exporting countries in short-run and long-run. However, in response to a positive oil price shock, most of OPEC countries experience long-run inflationary pressures.
How Changes in Oil Prices Affect the Macroeconomy
We estimate a New Keynesian general-equilibrium open economy model to examine how changes in oil prices affect the macroeconomy. Our model allows oil price changes to be transmitted through temporary demand and supply channels (affecting the output gap), as well as through persistent supply side effects (affecting trend growth). We estimate this model for Canada, the United Kingdom, and the United States over the period 1971-2008, and find that it matches the data very well in terms of first and second moments. We conclude that (i) energy prices affect the economy primarily through the supply side, whereas we do not find substantial demand-side effects; (ii) higher oil prices have temporary negative effects on both the output gap and on trend growth, which translates into a permanent reduction in the level of potential and actual output. Also, results for the United States indicate that oil supply shocks have more persistent negative effects on trend growth than oil demand shocks. These effects are statistically significant; however, our simulations also indicate that the effects are economically small.
Pizhūhishnāmah-i Iqtiṣād-i Inirzhī-i Īrān, 2015
The main objective of this study was to evaluate the effects of oil revenue, productivity and money growth rate shocks in macro-economic variables, in the context of a DSGE model with features such as the needs of infrastructure development and the existence of public investment inefficiencies and its comparison with Permanent Income Hypothesis (PIH model). The results show that oil revenue shock has increased consumption, government current and capital spending and has reduced inflation in the short run, although has increased in the medium term due to the demand side push. The results revealed that the National Development Fund and consequently the Fund's concessional facilities to the private sector has been raised. In addition, because of the structure of the economy that was largely unproductive and the government activity in the economy would lead to crowding out effect, the oil revenue growth has little effect on the growth of non-oil producing sector. More over, each of ...
Macroeconomic effects of oil price shocks on the major oil-exporting countries
Ahmad Hassan, 2022
Crude oil remains the primary source of energy, accounting for almost a third of global energy production. The international oil price is highly volatile and carries serious consequences for the oil-exporting economies. The exports, foreign reserves, and government revenue are impacted by the crude oil price shocks. The falling oil prices trigger an imbalance in trade, and balance of payments and widens the fiscal deficit. This paper examined the impact of oil price fluctuation in twenty-nine major oil exporting economies using the structural auto-vector regression model (SVAR) for the period from 1991 –2020. For empirical analysis annual data for the exports (EXP), foreign exchange reserves (RES), nominal effective exchange rate (EXC), fiscal balance (FisBal), and GDP growth (GDPg) are used in this research. The empirical findings show the vulnerability of developing economies to past oil price slumps. The Middle Eastern, Latin American, and African economies are the most oil-reliant. Economic growth in transitional economies is contributed by the oil sector. The fiscal structure of the government is built around the oil economy in developing oil-exporting countries. Thus, these countries should attempt the diversification of their fiscal structure for revenue and encourage alternate non-oil exports.
Oil Price Fluctuations and it Impact on Economic Growth: A Dsge Approach.
We estimated a dynamic stochastic general equilibrium (DSGE) model based on the features of the Ghanaian Economy, then examined the persistent effects of world oil price and monetary policy shocks (money supply-interest rate induced) on economic growth in Ghana. It was realized that, a shock on interest rate leads to a sharp fall in prices which reflects the impact of the decrease in interest rate on the marginal cost. There is a paradoxical effect of a negative interest rate on total money supply. We also showed that a positive output shock has the same effect on consumption, investment, prices and wages as in the case of interest rate shock.
Impact of Oil Revenues Accumulation on Socio-Economic Indicators
2014
The country that is rich with natural energy resources such as Kazakhstan has a significant source of revenues for well-being of its population. On the one hand, full use of all oil revenues for current consumption is associated with risks due to uncertainties in the development of global economy. Also unrestricted inflow of oil money into economy could lead to higher inflation in the country. On the other hand, accumulation of all oil revenues in a special fund to be used in emergency situations in the future is inefficient, as it deprives the country from using those revenues to improve living standards, to implement innovative projects and to improve the prospects for long-term economic development. A small dynamic stochastic general equilibrium model of open Kazakhstan's economy is built. The model corresponds to the new Keynesian tradition. It is assumed that in the country there are firms producing common goods and a sector that produces oil. Oil revenues are divided into ...
The impact of oil prices on an oil-importing developing economy
Journal of Development Economics, 2011
This paper analyzes the impact of an increase in the price of oil on a small developing economy. We consider the extent to which the impacts of oil price shocks depend upon the economy's internal production structure and its access to the world financial market, and find that the long-run impact depends much more on the former than the latter. Two critical quantities summarizing the long-run effects are (i) the relative share of oil to labor in output and (ii) the elasticity of substitution in production. We supplement the formal analysis with numerical simulations, thereby enabling us to characterize the short-run dynamics. Overall, the simulations can replicate much of the empirical evidence used to characterize the effects of the recent oil price increases on the economy. They also highlight the sensitivity of the effect of the oil price to the elasticity of substitution.
The Differential Effects of Oil Demand and Supply Shocks on the Global Economy
Energy Economics, 2014
We employ a set of sign restrictions on the impulse responses of a Global VAR model, estimated for 38 countries/regions over the period 1979Q2-2011Q2, as well as bounds on impact price elasticities of oil supply and oil demand to discriminate between supply-driven and demand-driven oil-price shocks, and to study the time pro…le of their macroeconomic e¤ects across a wide range of countries and real/…nancial variables. We show that the above identi…cation scheme can greatly bene…t from the cross-sectional dimension of the GVAR-by providing a large number of additional crosscountry sign restrictions and hence reducing the set of admissible models. The results indicate that the economic consequences of a supply-driven oil-price shock are very di¤erent from those of an oil-demand shock driven by global economic activity, and vary for oilimporting countries compared to energy exporters. While oil importers typically face a long-lived fall in economic activity in response to a supply-driven surge in oil prices, the impact is positive for energy-exporting countries that possess large proven oil/gas reserves. However, in response to an oil-demand disturbance, almost all countries in our sample experience long-run in ‡ationary pressures, an increase in real output, a rise in interest rates, and a fall in equity prices.