Oil price shocks and trade imbalances

• Published in: Energy economics Vol. 36; pp. 78 - 96
• Main Authors: Le, Thai-Ha, Chang, Youngho
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.03.2013; Elsevier
• Subjects: Applied sciences; Asians; Balance of trade; Causality; Economic data; Economic models; Economics; Energy; Energy economics; Energy policy; Estimation; Exact sciences and technology; Fossil fuels and derived products; General aspects; General, economic and professional studies; Granger non-causality test; Gregory-Hansen cointegration test; Japan; Malaysia; Methodology. Modelling; Oil; Oil price; Oil price shock; Policy making; Prices; Singapore; Trade balance; VAR; Vector-autoregressive models; Japan; Malaysia; Singapore; Q43; VAR; Oil price shock; Granger non-causality test; F1; N75; F4; Gregory-Hansen cointegration test; Trade balance; Econometric analysis
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2012.12.002

This study aims to examine whether a large part of the variability of trade balances and their oil and non-oil components is associated with oil price fluctuations. The long-run causality running from oil price to overall, oil and non-oil trade balances and their short-run dynamics are investigated by applying the Toda and Yamamoto, 1995 (TY) causality approach and generalized impulse response functions (IRFs), respectively to the monthly data spanning from January 1999 to November 2011. Three Asian economies that represent three distinct characteristics in terms of oil are chosen and examined: Malaysia as an oil exporter, Singapore as an oil refinery and Japan as an oil importer. The stability of the causality is also checked and the estimated impulse responses across different periods are examined. The results have implications for both policy makers and economic modeling of the impact of oil price shocks. ► Relationships between oil prices and trade balances (oil and non-oil components) are examined. ► Study for three economies with distinctive characteristics in terms of oil: Malaysia, Singapore, and Japan ► Results have implications for policy makers and economic modeling of the impact of oil price shocks. ► Trade is an important channel for the transmission of oil price shocks to an economy. ► For net oil exporters, insurance against falling oil prices should be provided and vice versa.