FFA Working Papers 4:009 (2022)438

Macroeconomic implications of oil price shocks to emerging economies: a Markov regime-switching approach

Sophio Togonidze, Evžen Kočenda

Institute of Economic Studies, Charles University

Department of Banking and Insurance, Faculty of Finance and Accounting, Prague University of Economics and Business

We investigate an impact of oil-price shocks on GDP and exchange rate dynamics in resource-heterogeneous economies. We employ a Markov regime-switching version of a vector autoregressive (VAR) model to allow for regime shifts, non-linear effects and timevarying parameters of the VAR process. Empirically we use quarterly data series in oil exporting, metal-exporting, and less-resource-intensive economies. On average, real GDP in oil-exporting economies exhibits substantial contraction, while for metal exporters there is a significant real GDP expansion suggesting an offsetting effect of metal exports on oil imports. We find that currency appreciation state is more persistent in oil- and metal exporting economies while less-resource-intensive economies remain longer in a currency depreciation state. Further evidence suggests existence of the counteracting forces such as foreign exchange interventions by authorities in oil-exporting economies. It also emerges that currency appreciation in oil-exporting economies is driven largely by economic performance rather than oil price  movement.

JEL classification: C11, C22, C58, E32, E37, F31, F44, Q43

Received: May 3, 2022; Revised: September 6, 2022; Accepted: September 12, 2022; Published online: February 21, 2022  Show citation