Advanced

Oil price shocks and trade

Åkerström, Viktor LU and Ljungqvist, Simon LU (2016) NEKP01 20161
Department of Economics
Abstract
This study aims to examine the effects of oil price shocks on the overall trade- and the non-oil trade balances for ten oil-importing Euro area countries. Theory suggests that the effects from an oil price shock on the oil component of the trade balance for oil importers is negative, but that the effect on the non-oil component is positive. Thus, the effect on the overall trade balance is ambiguous. When studying the relationship between the price of oil and trade, the Euro area is often considered as a homogeneous group and the results are presented at an aggregate level. The different economic structure and proneness to adjust to shocks among the countries motivate a study on an individual level. Using a data-set, spanning from 1980Q1 to... (More)
This study aims to examine the effects of oil price shocks on the overall trade- and the non-oil trade balances for ten oil-importing Euro area countries. Theory suggests that the effects from an oil price shock on the oil component of the trade balance for oil importers is negative, but that the effect on the non-oil component is positive. Thus, the effect on the overall trade balance is ambiguous. When studying the relationship between the price of oil and trade, the Euro area is often considered as a homogeneous group and the results are presented at an aggregate level. The different economic structure and proneness to adjust to shocks among the countries motivate a study on an individual level. Using a data-set, spanning from 1980Q1 to 2014Q4, we set up an unrestricted Vector Autoregressive (VAR) model to perform Granger causality tests, Impulse Response Functions (IRF:s) and variance decomposition analysis. The causality tests show that the price of oil only causes the non-oil trade balance. Moreover, the IRF:s indicate that the Euro area countries’ non-oil trade balances respond similarly to oil price shocks. However, the results for the overall trade balances are mixed, indicating that there are discrepancies between the countries. Further, by dividing the sample we investigated the proposition that the role of oil has declined during the last decades, this hypothesis could not be confirmed for all countries. (Less)
Please use this url to cite or link to this publication:
author
Åkerström, Viktor LU and Ljungqvist, Simon LU
supervisor
organization
course
NEKP01 20161
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Oil price shocks, trade balance, VAR, Orthogonalized Impulse Response Functions, Euro area
language
English
id
8878112
date added to LUP
2016-06-23 15:07:25
date last changed
2016-06-23 15:07:25
@misc{8878112,
  abstract     = {This study aims to examine the effects of oil price shocks on the overall trade- and the non-oil trade balances for ten oil-importing Euro area countries. Theory suggests that the effects from an oil price shock on the oil component of the trade balance for oil importers is negative, but that the effect on the non-oil component is positive. Thus, the effect on the overall trade balance is ambiguous. When studying the relationship between the price of oil and trade, the Euro area is often considered as a homogeneous group and the results are presented at an aggregate level. The different economic structure and proneness to adjust to shocks among the countries motivate a study on an individual level. Using a data-set, spanning from 1980Q1 to 2014Q4, we set up an unrestricted Vector Autoregressive (VAR) model to perform Granger causality tests, Impulse Response Functions (IRF:s) and variance decomposition analysis. The causality tests show that the price of oil only causes the non-oil trade balance. Moreover, the IRF:s indicate that the Euro area countries’ non-oil trade balances respond similarly to oil price shocks. However, the results for the overall trade balances are mixed, indicating that there are discrepancies between the countries. Further, by dividing the sample we investigated the proposition that the role of oil has declined during the last decades, this hypothesis could not be confirmed for all countries.},
  author       = {Åkerström, Viktor and Ljungqvist, Simon},
  keyword      = {Oil price shocks,trade balance,VAR,Orthogonalized Impulse Response Functions,Euro area},
  language     = {eng},
  note         = {Student Paper},
  title        = {Oil price shocks and trade},
  year         = {2016},
}