Oil Price Shock and its Impact on the Macroeconomic Variables of Pakistan: A Structural Vector Autoregressive Approach

Authors

  • Kashif Zaheer Malik Assistant Professor Department of Economics Lahore University of Management Sciences. http://orcid.org/0000-0002-6038-948X
  • Haram Ajmal Research Associate, Punjab Resource Management Program, Government of the Punjab, Lahore, Pakistan
  • Muhammad Umer Zahid Research Associate, Department of Economics, Lahore University of Management Lahore, Pakistan

Abstract

This study examines the dynamic effects of the oil price shocks on the key macroeconomic variables of Pakistan. A Structural Vector Autoregressive model is used on yearly data from 1960 to 2014. The impulse response functions indicate that the oil price shocks depress the real gross domestic product while the real exchange rate also experiences depreciation. However, the long-term interest rate and the inflation rate rise as a result of a positive oil price shock. The unanticipated changes in these macroeconomic variables threaten the economic stability of Pakistan; specifically, higher inflation and interest rates hamper the economy's growth rate. Lastly, the variance decomposition analysis illustrates that the oil price shocks have the most impact on the inflation rate of Pakistan.

Keywords: SVAR; Oil Price Shocks; Macroeconomic Variable

JEL Classifications: C22; E40; E31; E50; Q43 

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Author Biography

Kashif Zaheer Malik, Assistant Professor Department of Economics Lahore University of Management Sciences.

Dr. Kashif Zaheer Malik is an Assistant Professor of Economics at Lahore University of Management Sciences (LUMS). Dr. Malik is a Fulbright Scholar and has completed his Doctorate and Masters from Florida State University and MS from LUMS. At LUMS he teaches courses in Applied macroeconomics, Econometrics, Time-series Econometrics, Monetary Theory and Policy and Principles of Macroeconomics. His area of research ranges from empirical macroeconomics, theoretical macroeconomics and Industrial Organization. Dr. Malik has conducted various quantitative researches in multiple areas: Trade, Industry and Micro-finance. ` He has done consulting projects for Barclays Bank and Coca-Cola Beverages Pakistan Limited. He has also been involved with International Growth Center (IGC). He is currently working on a preliminary study, “Encouraging Entrepreneurship: A Randomized Evaluation of Micro-Venture Capital - An Initial Assessment”. The main objective of this study is to conduct initial assessment to introduce equity based micro-financing (micro-venture capital or Sharia compliant micro financing) at much lower level. The long-run objective is to conduct field experiments based on Randomized Controlled Trails (RCT) by offering Modarba micro-finance of up to Rs. 300,000/- to existing clients of Akhuwat (Akhuwat is a microfinance institution operating in Pakistan. It gives out small interest free loans).Simultaneously, he is working on a project “Measuring Economic Impact of Coca-Cola Beverages Pakistan Limited (CCBPL)”. The study employees input-output model and Social Accounting Matrix to measure income and employment effects of CCBPL on the economy. In addition, to capture effects in the informal economy a comprehensive survey is conducted. Â Dr Malik has also conducted two research studies for IGC, first study was, Note on Constraints Faced by Industry in Punjab and second was An Analysis of the garment sector- A quantitative perspective. The first study identified and analyzed major constraints faced by industry in Punjab. Using survey data of 100 firms from key industrial clusters, the reports put forward suggestion for the growth of industrial sector of Punjab. The second study analyzed the garment sector by using quantitative data of approximately 250 firms from key clusters. The study analyzed the key growth constraints to garment sector. The narrow base of Pakistan's garment sector limited to low value added products however, it holds potential for growth.   

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Published

2017-11-01

How to Cite

Malik, K. Z., Ajmal, H., & Zahid, M. U. (2017). Oil Price Shock and its Impact on the Macroeconomic Variables of Pakistan: A Structural Vector Autoregressive Approach. International Journal of Energy Economics and Policy, 7(5), 83–92. Retrieved from https://www.econjournals.com/index.php/ijeep/article/view/5346

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