Impacts of Oil Price Shocks on Macroeconomic Variables of Oil Exporting and Importing Countries: A Global VAR Approach

This paper investigates the effects of oil price shocks on real GDP and inflation in selected oil exporting and importing countries using the Global VAR approach. We have used the data for 47 countries over the 38 years from 1979 to 2015 in this research. We have grouped the countries into 21 regions. Our results indicate that firstly that the impact of shocks on the real GDP of oil-exporting countries varies, depending on the volume of proven oil reserves and the ratio of reserves to oil production. For those oil-exporting countries that have a higher ratio of reserves to oil production, the effect of rising oil prices on their gross domestic product has been stronger, due to their greater ability to increase production in response to rising prices. Secondly, those oil-importing countries that have been major trading partners of oil-exporting countries are less affected by the shock of rising oil prices. Thirdly, the inflationary impact of rising oil prices has been relatively strong in oil-importing countries, but the persistence of these effects has varied depending on choice of monetary policy and flexibility of labor markets. On the other hand, inflationary impact of  rising oil prices in oil-exporting countries has been negligible or even negative, possibly due to the appreciation of the exchange rates of these countries.