Asymmetric Effects of Oil Price Shocks on Economic Growth and Inflation in Asia: What do We Learn from Empirical Studies?

Jiranyakul, Komain (2025): Asymmetric Effects of Oil Price Shocks on Economic Growth and Inflation in Asia: What do We Learn from Empirical Studies?

Abstract

Asymmetric impacts of oil price shocks on key macroeconomic variables are caused by some important effects, such as income effect, uncertainty effect, precautionary saving effect, irreversible investment and reallocation effects. Due to these effects, output and prices respond diferently to oil price increases and decreases. This asymmetry hypothesis has been empirically tested by many economists. This paper surveys recent empirical studies on the asymmetric impacts of oil price shocks on economic activity and inflation in Asia. The empirical findings in Asian economies shows that the responses of output growth oil price shocks in Japan and South Korea tend to be asymmetric while the responses of inflation seem to be symmetric. For China, the largest oil-importing in Asia, the empirical results show that asymmetry is increasingly discovered. The results of the responses of inflation to oil price shocks in China do not favor the asymmetry hypothesis. The findings in the ASEAN5 economies are likely to support the symmetry hypothesis. In South Asian economies, only few studies favor the asymmetry hypothesis. Because empirical results for other Asian countries are not widely investigated, it is too early to draw some conclusions. One important finding is that Asian oil-exporting countries, Indonesia, Malaysia, and Vietnam, might not escape the adverse impacts of oil price shocks on output growth. Since output and inflation can be unfavorably affected by oil price shocks, some researchers will recommend accommodative monetary policy along with exchange rate policy to stabilize the responses of output and prices when oil price tends to increase.

• Item Type: MPRA Paper
• Language: English
• Keywords: Oil price shocks, output growth, inflation, asymmetric and symmetric impacts, Asian economies
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

References

Abeysinghe, T., (2001), “Estimation of direct and indirect impact of oil price on growth,” Economics Letters, 73(2), 147-153.

Acharya, R. H., and Sadath, A. C., “Revisiting the relationship between oil price and macroeconomy: evidence from India,” Economics and Policy of Energy and the Environment, 2018(1), 173-190.

Aharon, D. Y., Aziz, M. I. A., and Kallir, I., (2023), “Oil price shocks and inflation: a cross-national examination in the ASEAN5+3 countries,” Resources Policy, 82(103573).

Avastveit, K. A., Bjornland, H. C., and Thorsrud, L. A., (2015), “What drives oil prices? Emerging versus developed economies,” Journal of Applied Econometrics, 30(7), 1013-1028.

Bachmeier, L. J., and Keen, D., (2023), “Modeling the asymmetric effects of an oil price shock,” International Journal of Central Banking, 19(3), 1-47.

Baek, J., (2021), “Crude oil prices and macroeconomic activities: a structural VAR approach to Indonesia,” Applied Economics, 53(22), 2527-2538.

Basnet, H. C., and Upadhyaya, K. P., (2015), “Impact of oil price shocks on output, inflation and the real exchange rate: evidence from selected ASEAN countries,” Applied Economics, 47(29), 3078-3091.

Chang, Y., and Wong, J. F., (2003), “Oil price fluctuations and Singapore economy,” Energy Policy,” 31(11), 1151-1165.

Chen, J., Zhu, X., and Li, H., (2020), “The pass-through effects of oil price shocks on China’s inflation: a time-varying analysis,” Energy Economics, 86 (104965).

Choi, S., Furceri, D., Lougani, P., Mishra, S., and Poplauski-Ribeiro, M. (2018), “Oil price and inflation dynamics: Evidence from advanced and developing economies,” Journal of International Money and Finance, 82(C), 71-96.

Cologni, A., and Manera, M., (2009), “The asymmetric effects of oil shocks on output growth: a Markov-Switching analysis for the G-7 countries,” Economic Modelling, 20(1), 1-29.

Cross, J., and Nguyen, B. H., (2017), “The relationship between global oil price shocks and China’s output: a time-varying analysis,” Energy Economics, 62(C), 79-91.

Cunado, J., Jo, S., and Perez de Gracia, F., (2015), “Macroeconomic impacts of oil price shocks in Asian economies,” Energy Policy, 86(C), 867-879.

Cunado, J., and Perez de Gracia, F., (2005), “Oil prices, economic activity and inflation: evidence for some Asian countries,” Quarterly Review of Economics and Finance, 45(1), 65-83.

Darby, M. R. (1982), The price of oil and world inflation and recession,” American Economic Review, 72(4), 738-751.

Du, L., Yanan, H., and Wei, C., (2010), “The relationship between oil price shocks and China’s macroeconomy: an empirical analysis,” Energy Policy, 38(8), 4142-4151.

Edelstein, P., and Kilian, L., (2009), “How sensitive are consumer expenditures to retail energy prices?,” Journal of Monetary Economics, 56(6), 766-779.

Enders, W., and Granger, C. W. F. (1998), “Unit root tests and asymmetric adjustment with an example using the term structure of interest rates,” Journal of Business and Economic Statistics, 16(3), 304-311.

Enders, W. and Siklos, P., (2001), “Cointegration and Threshold Adjustment,” Journal of Business and Economic Statistics, 19(2), 166-176.

Engle, R. F. and Granger, C. W. J., (1987), “Co-integration and error correction: representation, estimation and testing,” Econometrica, 55(2), 251-276.

Fukunaka, I., Hirakata, N., and Sudo, N., (2010), “The effects of oil price changes on industry-level production and prices in the U.S. and Japan,” NBER Working Paper.

Granger, C. W. J., (1969), “Investigating causal relations by econometric models and cross spectral methods,” Econometrica, 37(3), 424-438.

Granger, C. W. J., (1988), “Causality, cointegration, and control.” Journal of Economic Dynamics and Control, 12(2-3), 551-559.

Gregory, A. W. and Hansen, B. E., (1996), “Residual-based tests for cointegration in models with regime shifts,” Journal of Econometrics, 70(1), 99-126.

Guerrero-Escoba, S., Hernandez-del-Valle, G., and Hernandez-Vega, M., (2019), “Do heterogenous countries respond differently to oil price shocks,” Journal of Commodity Markets, 16(C).

Hamilton, J. D., (1983), ”Oil and macroeconomy since World War II”, Journal of Political Economy, 91(2), 228-248.

Hamilton, J. D., (1996), “What happened to the oil price-macroeconomy relationship?” Journal of Monetary Economics, 38(2), 195-213.

Hamilton, J. D., (2003), “What is an oil shock?” Journal of Econometrics, 113(2), 363-398.

Herrera, A. M., Lagolo, L. G., and Wada, T., (2015), “Asymmetries in the response of economic activity to oil price increases and decreases,” Journal of International Money and Finance, 50(C), 108-133.

Hooker, M. A., (2002), “Are oil shocks inflationary? asymmetric and nonlinear specification versus changes in regime,” Journal of Money, Credit, and Banking, 34(2), 540-561.

Johansen, S., (1991), “Estimation and hypothesis testing for cointegration vectors in Gaussian vector autoregressive models,” Econometrica, 59(6), 1151-1580.

Johansen, S and Juselius, K., (1990), “Maximum likelihood estimation and inference on cointegration with applications to the demand for money,” Oxford Bulletin of Economics and Statistics, 52(2), 169-210.

Khan, M. A., Husnain, M. I. U., Abbas, Q., and Shah, S. Z. A., (2019), “Asymmetric effects of oil price shocks on Asian economies,” Empirical Economics, 57(4), 1319-1350.

Kilian, L., (2009), “Not all oil price shocks are alike: disintangling demand and supply shocks in the crude oil markets,” American Economic Review, 99(3), 1053-1069.

Kilian, L. and Zhou, X., (2023), “Oil price shock and inflation,” Working Paper 2312, Research Department, Federal Reserve Bank of Dallas.

Kisswani, K. M., (2021), “The dynamic links between oil prices and economic growth: recent evidence from nonlinear cointegration analysis for the ASEAN-5 countries,” Emerging Market Finance and Trade, 57(11), 3153-3166.

Kumar, S., (2009), “The macroeconomic effects of oil price shocks: empirical evidence for India,” Economics Bulletin, 29(1), 15-37.

Lahiani, A., (2019), “Exploring the inflationary effect of oil price in the US: a quantile regression approach over 1876-2014,” Journal of Energy Sector Management, 13(1), 60-76.

Lee, K. and Ni, S., (2002), “On the dynamic effects of oil price shocks: a study using industry level data,” Journal of Monetary Economics, 49(4), 823-852.

Lee, K., Ni, S., and Ratti, R. A., (1995), “Oil price shocks and the macroeconomy: the role of oil price variability,” Energy Journal, 16(4), 39-56.

Li, Y., and Guo, J., (2022), “The asymmetric impacts of oil price and shocks on inflation in BRICS: a multiple threshold nonlinear ARDL model,” Applied Economics, 54(12), 1327-1395.

Liu, D., Meng, L., and Wang, Y., (2020),” Oil price shocks and Chinese economy revisited: new evidence from SVAR model with sign restrictions,” International Review of Economics and Finance, 69(C), 20-32.

Mork, K. A., (1989), “Oil and the macroeconomy when prices go up and down: an extension of Hamilton results,” Journal of Political Economy, 97(3), 740-744.

Mork, K. A., Olsen, O., and Mysen, H. T., (1994), “Macroeconomic responses to oil price increases and decreases in seven OECD countries,” Energy Journal, 15(4), 19-35.

Mory, J. F., (1993), “Oil prices and economic activity: is the relationship symmetric?,” Energy Journal, 0(4), 151-162.

Nusair, S. A., and Olson, D., (2021), “Asymmetric oil price and Asian economies: a nonlinear ARDL approach,” Energy, 219(119594).

Peersman, G., and Van Robays, I., (2012), “Cross-country differences in the effects of oil shocks,” Energy Economics, 34(5), 1532-1547.

Pesaran, M. H., Shin, Y., and Smith, R. J., (2001), “Bounds testing approaches to the analysis of level relationships,” Journal of Applied Econometrics, 16(3), 289-326.

Pham, B. T., and Sala, H., (2020), “The macroeconomic effects of oil price on Vietnam: evidence from an over-identifying SVAR analysis,” Journal of International Trade and Economic Development, 29(3), 907-933.

Phillips, P. C. B, and Ouliaris S., (1990), “Asymptotic properties of residual-based tests for cointegration,” Econometrica, 58(1), 165-193.

Prettucelli, J., and Wollford, S., (1984), “A threshold AR(1) model.” Journal of Applied Probability, 21(3), 273-286.

Razmi, F., Azali, M., Chin, L. and Sha Habibulla, M., (2016), “The role of monetary transmission channels in transmitting oil price shocks to prices in ASEAN-4 countries during pre- and post-global financial crisis,” Energy, 101(C), 581-591.

Sek, S. K., (2023), “A new look at asymmetric effect of oil price changes on inflation: evidence from Malaysia,” Energy and Environment, 34(5), 1524-1547.

Shah, I., (2012), “Revisiting the dynamic effect of oil price shock on small developing economies,” Bristol Economics Discussion Papers 12/626, School of Economics, University of Bristol, UK.

Shin, Y., Byungchul, Y., and Greenwood-Nimmo, M., (2014), “Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework,” in The Festschrift in Honor of Peter Schmidt: Econometric Methods and Applications, edited by Sickles, R. C., and Horrace, W. C. New York, Springer, 281-314.

Sultan, Z, Alkhateep, T., and Fawaz, M., (2020), “Empirical investigation of the relationship between oil price and inflation: the case of India,” International Journal of Energy Economics and Policy, 10(3), 90-94.

Tang, W., Wu, L., and Zhang, Z., (2010), “Oil price shocks and their short- and long-run effects on the Chinese economy,” Energy Economics, 32(S), 3-14.

Vogelsang, T. J., (1993), “The great crash, the oil price shock, and the unit root hypothesis: erratum,” Econometrica, 61(1), 248-249.

Vu, T. K., and Nataka, H., (2018), “Oil price fluctuations and the small economies of Southeast Asia: an analysis using vector autoregression with block exogeneity,” Journal of Asian Economics, 54(C), 1-21.

Wei, Y. and Guo, X., (2016), “An empirical analysis of the relationship between oil prices and the Chinese macro-economy,” Energy Economics, 56(C), 88-100.

Wen, F., Min, F., Zhang, Y., and Yang, C., (2019), “Crude oil price shocks, monetary policy, and China’s economy,”” International Journal of Finance and Economics, 24(2), 812-827.

Zakaria, M., Khiam, S., and Mahmood, H., (2021), “Influence of oil price on inflation in South Asia: some new evidence,” Resources Policy, 71 (102014).

Zhang, D., (2008), “Oil shock and economic growth in Japan: a nonlinear approach,” Energy Economics, 30(5), 2374-2390.

Zhao, L., Zhang, X., Wang, S., and Xu, S., (2016), “The effects of oil price shocks on output and inflation in China,” Energy Economics, 53(C), 101-110.