Does the Oil Price Matter? Case of the Czech Republic

The aim of this working paper is to apply the Bayesian VAR method to analyse the relationship between oil price movements and GDP in the Czech Republic. To capture the possible indirect channels reflecting the changes in the oil prices, the model includes also the inflation measured by CPI and narrow money M1. Three specifications for the oil prices are used to identify whether changes in oil price contribute significantly either in linear, linear assymetric or nonlinear assymetric way. Results indicate the lagged effects of the reduced VAR model are not able to capture any significant impact of changes in the world oil prices, and oil prices are therefore not found to contribute directly to inflation, GDP or money base