IMPACT OF OIL PRICES SHOCK ON MACRO-ECONOMIC INDICATORS: A CASE STUDY OF PAKISTAN

Abstract In this study we examined the impact of oil price shocks on macro- economic indicators (i.e., Gross Domestic Product, inflation, investment, money supply & exchange rate) by applying the Vector Autoregressive Model and using quarterly data (i.e. from 1961q1- 2022q1). Results of Vector Autoregressive model suggested that the oil price has significant influence on economic conditions in a country. Moreover, oil price has shown the negative effect on GDP and investment, while as oil price has positively affected on inflation. Furthermore, granger causality test shows the bidirectional relationship among the oil price and GDP, oil price and investment other variables are uni-variate. Impulse response and factor variance decomposition has showed the oil price has significant impact on major economic indicators of Pakistan. This study also retained some limitations in the context of Pakistan.