Oil price movements and macroeconomic variables: Evidence from high and upper middle income countries

ABSTRACT: This study investigates the relationship between oil price movements and macroeconomic variables such as GDP, CPI and unemployment rate for high income and upper middle income OECD countries. Second generation econometric methods are used, because the estimation results are more robust. Durbin-H panel co-integration test confirm that, there is long term relationship between oil prices and macroeconomic variables. Oil price has statistically significant impact in all of the regressions except on unemployment rate in single and double regression models for the overall countries. So, the increase in oil price affects macroeconomic variables negatively. Also, analysis of long term coefficients for each of the country is applied and found that, oil price movements have mixed effects (positive or negative) on macroeconomic variables. On the other hand, the impact of oil price movement on macroeconomics actually depends on the country’s oil dependency. Keywords: Oil Price, Gross Domestic Production, Consumer Price Index, Unemployment Rate. …………………………………………………………………………………………………………………………………………………………………………………………………………