Report on the Economic Impact of Oil Price Fluctuations Study

This report examines the economic impact of oil price fluctuations, focusing on the effects on exporting countries and the world oil market. It employs an econometric model, specifically the VAR model, to estimate the relationship between crude oil prices and macroeconomic fluctuations using monthly data. The analysis identifies structural breaks and uses impulse response functions to assess the dynamics. The findings suggest a positive correlation between GDP growth and oil prices, with rising oil prices positively affecting foreign reserves and leading to domestic currency appreciation. The report concludes by emphasizing the importance of understanding these impacts for developing policy implications to strategically manage unexpected oil price changes. Desklib offers a range of solved assignments and past papers for students.

THE ECONOMIC IMPACT OF OIL
PRICE FLUCTUATION

Introduction
■ The fluctuation in the oil price always affects production cost of the
importers.
■ Fluctuation in oil prices therefore affects government budget
revenues.
■ Oil and gas revenues plays a strategic role in the economy.

Objective
■ Oil price fluctuation became an important topic in the filed of
economics after the first oil price shock.
■ The paper aims to find the impact of the oil price volatility on the
exporting countries,
■ The paper also explains about the world oil market.
oil-price-share.jpgoil-price-share.jpg

Structure
Research background
Methodology
Empirical result
conclusion

Structure
■ The first Part of the paper consists of the background of the study.
■ The second part of the paper provides an explanation to the oil price
transition mechanism.
■ The third part consists of methodology and data description.
■ The last part of the paper consist of the conclusion.

World crude export of oil
The graphical representation above shows the crude oil export from the
year 1965 to 2015 of both the OPEC and Non OPEC countries.

The above graph shows the movement of the real oil price and the real effective
exchange rate.

Methodology
■ In this paper the author develops an econometric model for explaining
the impact of price fluctuations.
■ The author uses the VAR model to estimate the relationship between
the crude oil prices and the macro economic fluctuations

• In case of empirical analysis the monthly data
set which consisted of 288 observations are
taken
• The data used in this case `does not include
any logarithmic growth rates.
• The next part of the paper identifies the
structural break in the data sample when the
economy started recovering.
• A standard Chow test has been used to check

Findings
■ In this part the results of the impulse response functions have been
found out.
■ The test was conducted in order to find the dynamics of the structural
VAR model.
■ The result of the analysis suggests that the growth of the GDP is
positively affected by the oil prices.

• The price of oil in the international market is
determined in U.S dollars and therefore, a rise in oil
prices positively affects the foreign reserves .
• It also results in the appreciation of the domestic
currency.
• When there is an improve in exchange rate it
makes the consumer good cheaper.

The above graph shows the oil prices, exchange rate and import price in the year
1997 – 2014.