BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 16/2008:
Trade linkages and macroeconomic effects of the price of oil
Iikka Korhonen ()
and Svetlana Ledyaeva
Abstract: In this paper we assess the impact of oil price shocks on
oil-producer and oil-consumer economies. VAR models for different countries
are linked together via a trade matrix, as in Abeysinghe (2001). As
expected, we find that oil producers (Russia and Canada here) benefit from
oil price shocks. For example, a large oil shock, leading to a price
increase of 50%, boosts Russian GDP by some 12%. However, oil producers are
hurt by indirect effects of oil shocks, as economic activity in their
export countries suffers. For oil consumers, the effects are more diverse.
In some countries, output drops in response to an oil price shock, while
other countries seem to be relatively immune to oil price changes. Finally,
indirect effects are also detected for oil-consumer countries. Those
countries trading more with oil producers receive indirect benefits via
higher demand from the oil producing countries. In general the largest
negative total effects from positive oil price shocks are found in China,
USA and Japan while European countries seem to fare quite well during
recent positive oil-price shocks.
Keywords: oil; macroeconomic fluctuations; trade linkages; Russia; (follow links to similar papers)
JEL-Codes: C32; E32; F43; Q43; (follow links to similar papers)
40 pages, November 21, 2008
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