Oil Price Shocks: A Comparative Study on the Impacts in Purchasing Power in Pakistan

Article

Jamali, Muhammad Bachal, Shah, Asif, Soomro, Hassan Jawad, Shafiq, Kamran and Shaikh, Faiz M.. 2011. "Oil Price Shocks: A Comparative Study on the Impacts in Purchasing Power in Pakistan." Modern Applied Science. 5 (2), pp. 192-203. https://doi.org/10.5539/mas.v5n2p192
Article Title

Oil Price Shocks: A Comparative Study on the Impacts in Purchasing Power in Pakistan

ERA Journal ID41980
Article CategoryArticle
AuthorsJamali, Muhammad Bachal (Author), Shah, Asif (Author), Soomro, Hassan Jawad (Author), Shafiq, Kamran (Author) and Shaikh, Faiz M. (Author)
Journal TitleModern Applied Science
Journal Citation5 (2), pp. 192-203
Number of Pages12
Year2011
Place of PublicationCanada
ISSN1913-1844
1913-1852
Digital Object Identifier (DOI)https://doi.org/10.5539/mas.v5n2p192
Web Address (URL)https://ccsenet.org/journal/index.php/mas/article/view/10152
Abstract

The current research investigates the relationship between changes in crude oil prices and Pakistan and the macro-economy. A multivariate VAR analysis is carried out among five key macroeconomic variables: real gross domestic product, short term interest rate, real effective exchange rates, long term interest rate and money supply. From the VAR model, the impulse response functions reveal that oil price movements cause significant reduction in aggregate output and increase real exchange rate. The variance decomposition shows that crude oil prices significantly contribute to the variability of real exchange rate long term interest rate in the Pakistan economy while oil price shocks are found to have significant effects on money supply and short term interest rate in the economy. Despite these macro econometric results, caution must be exercised in formulating energy policies since future effects of upcoming oil shocks will not be the same as what happened in the past. Explorations and development of practicable alternatives to imported fuel energy will cushion the economy from the repercussions of oil shocks. Oil price shock has negative impact on the GDP and as well as economy of Pakistan.

KeywordsMacroeconomic performance; Oil price fluctuations; Pakistan
ANZSRC Field of Research 2020359999. Other commerce, management, tourism and services not elsewhere classified
Byline AffiliationsShah Abdul Latif University, Pakistan
COMSATS University Islamabad, Pakistan
Zulfiqar Ali Bhutto Agricultural College, Pakistan
Institution of OriginUniversity of Southern Queensland
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