Oil prices and investments across the Eastern European countries

This research examines the impact of oil prices on investment dynamics in Eastern European countries using quarterly data from 2010 to 2023. The main objective is to assess the short-run and long-run effects of oil price fluctuations on investment levels, considering the role of exchange rates and interest rates as additional macroeconomic determinants. The study employs the autoregressive distributed lag (ARDL) model, which allows for the analysis of both immediate and equilibrium relationships between variables. Specifically, a positive long-run impact of oil prices on investment is observed in 10 out of 11 countries. A negative impact is only found in Croatia, while in Slovakia, oil prices do not affect investment. Regarding short-run effects, there is a strong positive correlation between oil price and investment in Slovenia and Latvia, whereas a negative effect is found for 6 countries. It is worth noting that using the real exchange rate instead of the nominal one significantly weakens the relationship between oil prices and investment. Among other findings, investment is positively associated with higher interest rates in 7 countries, while the intuitively expected negative effects are only found in Hungary and Poland. Investment reacts more strongly to the nominal exchange rate compared to the effect of the real exchange rate. Although the long-run impact of the exchange rate is predominantly negative, this does not hold for short-run effects. In particular, our results suggest a significant heterogeneity of exchange rate effects across the studied countries.