The Economic Impact of Oil Price Shocks on Emerging Markets

Recent spikes in oil prices have thrown light on how economic activity in emerging markets may be impacted by oil price shocks. This paper conducts an empirical analysis of the effect of oil price shocks on emerging markets. It tests for the existence of an asymmetrical relationship between oil prices and economic activity using a model developed by James Hamilton. It also assesses the impact of structural shocks to the real price of oil on output as proposed by Lutz Kilian. While our models find no consistent pattern within emerging markets, they do suggest that oil price shocks have a greater significance in 2000-2009 than in the full sample of 1974-2009. We also find that emerging economies are impacted by changes in oil specific demand but unaffected by changes in aggregate demand for industrial commodities.