The impact of Oil Prices on Economic Growth: A Non-linear Specification

In this study, we assess the impact of oil price changes on the economic growth of some OECD oil exporters countries, including Norway, UK and Canada, and by recognizing the dependence of developed industrialized countries on oil and the impact of oil prices have on their economies and in turn the dependence of developing countries like Iran on the economy of advanced countries. We use the GARCH method to estimate non-linear transformation of oil prices, which are in turn used in VECM framework. The variables used in the model include short and long term rates of interest, rate of inflation, GDP growth rate, effective exchange rate and increase and decrease of oil prices estimated using the non-linear GARCH method. The results for different countries imply asymmetrical impact of oil price changes on GDP growth rates; on the other hand, the results show that monetary shocks are an important and noticeable factor on variability of GDP growth rates, supplementing the impact of oil price shocks.