Response of Pakistan’s Economy on Oil Price Fluctuations

Pakistan’s Economy on Oil Price Fluctuations

Abstract

This paper attempts to quantify the impact of oil price changes on key
macroeconomic aggregates for the economy of Pakistan using linear and
nonlinear specifications with major emphasis on regulatory reforms initiated
in the oil sector during the last decade. The empirical investigation confirms
that the nexus between oil price and macro-economy has significantly
changed after 2002-03 and that there is ample evidence of structural breaks.
The study makes use of multivariate VAR using monthly data over the period
1995:1 to 2014:11 and finds significant relationship between changes in
international oil prices and output during the post-deregulation period
(2003-2014). However, the relationship turned out to be asymmetric in
nature. Compared to this, the study did not find any significant relationship
between oil price changes and major macroeconomic aggregates during the
pre-deregulation period (1995-2002).