Is New Zealand's economy vulnerable to world oil market shocks?

Jaforullah, Mohammad; King, Alan

Is New Zealand's economy vulnerable to world oil market shocks?

Jaforullah, Mohammad; King, Alan

Cite this item: Jaforullah, M., & King, A. (2015). Is New Zealand’s economy vulnerable to world oil market shocks? (Economics Discussion Papers Series No. 1503). University of Otago. Retrieved from http://hdl.handle.net/10523/5615

Permanent link to OUR Archive version: http://hdl.handle.net/10523/5615

Date: 2015-04

Publisher: University of Otago

Series: Economics Discussion Papers Series

Series number: 1503

ISSN: 1178-2293 (Online)

Keywords: oil imports; price elasticity; income elasticity; Granger causality; cointegration; vector error correction model

Research Type: Discussion Paper

Languages: English

Abstract:

We assess New Zealand’s vulnerability to oil shocks by estimating its price and income elasticities of demand for imported oil and by testing for Granger causality between oil imports, their price and GDP. Based on data for the period 1987Q2–2012Q4, we find the short-run price and income elasticities to be statistically insignificant. However, the long-run price and income elasticity estimates are significant and equal to −0.34 and 1.61, respectively. We also find that oil imports, and to some extent oil prices, Granger-cause real GDP, indicating that the New Zealand economy is vulnerable to shocks in the world oil market.

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