Date of Award

1-1-2001

Thesis Type

Masters

Document Type

Thesis

Divisions

Faculty of Business and Economics

Department

-

Institution

Universiti Malaya

Abstract

Petroleum is the third factor of production and is expected to remain so as Malaysia targets to achieve full industrialization in twenty years time. It is therefore, crucial to understand the impact of oil price on the macroeconomy. Thus, this paper attempts to examine the short-run dynamics of industrial production, interest rates and, stock market activity, in relation to oil price changes and oil price volatility by using the vector autoregressive (VAR) model. Volatility is modeled using the Generalised Autoregressive Conditional Heteroskedasticity (GARCH) model. Systematic shocks are introduced and the impacts of anticipated and unanticipated oil price changes are analyzed using the using impulse response functions and variance decompositions. The results indicate that the effects the unanticipated increase in oil prices has longer and more profound negative impact on the economy than do the anticipated changes. The system needs typically a period of 6 to 7 months to adjust to impacts of anticipated oil changes, whereas a period of 10 months to a year is common for completion of adjustment to unanticipated changes. Anticipated oil price changes can explain a higher proportion of the forecast variance of the macroeconomic variables compared to unanticipated changes.

Initial

snms

Additional Information

Dissertation (M.A) -- Faculty of Business and Economics, Universiti Malaya, 2002.

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