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Title Economic Effects of Oil and Global food Prices Shocks on Macroeconomic Variables in Pakistan

Author(s) Shazia Kausar

Abstract Effect of fluctuation in oil price and global food price on macroeconomic variables is namely called oil and food price shock these fluctuations may include upward or downward movement in oil and food prices which are suggested by economic theory. These shocks are the main cause of policy vagueness and ambiguity in the economy. The spread of oil price shock and the association between these shocks and economic performance of a country give useful understanding to the policy makers regarding the fiscal and monetary policy. This study observe the transmission channels by which world crude oil and food price shocks disturbs the movements of carefully chosen macroeconomic variables which includes inflation rate, call money rate (as a proxy of interest rate), real effective exchange rate, stock price index, economic growth and quantum of industrial export for Pakistan economy by using quarterly data over the period of 1990 Q1 to 2018 Q4. A realistic and empirical analysis is supported by employing structural vector autoregressive model. To track the impact of world crude oil and food price shocks to Pakistan economy we employed Impulse response analysis and Forecast variance decomposition. Results reveals that world crude oil price shock has, negative impact on economic growth and real effective exchange rate, positive impact on inflation and call money rate. On the other way following world food price shock stock market do not have noticeable effect and call money rate and inflation have positive impact of shock. However the variation in call money rate are higher in presence of world oil price shock in comparison of food price. Forecast error Variance decomposition discloses that real effective exchange rate is most important base of deviation and instabilities in case of world crude oil price shock. On the other hand among all, we can say that real effective exchange rate is a main cause of deviations in Pakistan. This infers that supply and demand side instabilities initiated and originated by the external/exterior shocks which are the main cause of inflation and unemployment in Pakistan. To avoid these damaging affects to Pakistan’s economy we need to search a path towards self-reliance in case of food and government should take the steps to maintain and achieve food security. Furthermore we needs to address the excess demand of oil by using other means of transportation and diversify our industrial sector in such manner that we produce high quality products by using other substitute as energy source instead of crude oil. By exploring the natural resources and crude oil within the country balance of payment can recover its deficit and foreign dependence will also be condensed.

Type Thesis/Dissertation

Faculty Management Sciences

Department Economics

Language English

Publication Date 2021-04-06

Subject Economics

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