Importance of oil shocks and the GCC macroeconomy: A structural VAR analysis

• Published in: Resources policy 2019-06, Vol.61, p.166-179
• Main Authors: Nasir, Muhammad Ali, Al-Emadi, Ahmed Abdulsalam, Shahbaz, Muhammad, Hammoudeh, Shawkat
• Format: Article
• Language: English
• Subjects: Cooperation; Dependence; E31; Economic development; Economic models; F14; F15; F43; GCC; GDP; Gross Domestic Product; Inflation; International cooperation; Natural resources; Oil price shocks; Petroleum; Prices; Q41; Q43; Regression analysis; Regression models; Revenue; SVAR model; Trade balance
• ISSN: 0301-4207; 1873-7641
• DOI: 10.1016/j.resourpol.2019.01.019

This study is an endeavour to analyse the influence of oil price shocks on the macroeconomy of the Gulf Cooperation Council (GCC) member countries (Bahrain, Kuwait, KSA, Oman, Qatar and UAE). By employing a structural Vector auto-regression (SVAR) model for period 1980–2016, our key findings suggest that there are significant positive effects of oil price shocks on the GDP, inflation and trade balance of those countries. The findings, however, show substantial heterogeneities in the responses of the GCC members to oil shocks, which suggests the presence of idiosyncrasies in the underlying structure of their economies and differences in the degree to which these economies are dependent on oil revenues. In terms of inflation, there are also major differences in the intensity of the impact of oil shocks on the overall price, which implies that the GCC monetary policies might face a different genre of challenges to attain price stability in the face of those shocks. Our findings have profound policy implications in terms of diversifying the economies of the GCC countries and efforts to decrease the sole dependence on oil revenues. •Significant & positive effects of oil price shocks on the GDP, Inflation and Trade balance of the GCC countries.•Substantial heterogeneities in the response of the GCC member.•Idiosyncrasy in the structural underlying economies and differences in oil dependence.•Monetary policy in GCC may face different genre of challenges to price stability in the face of oil shocks.•Implications in terms of diversifying the economies of the GCC countries.