Oil Price Shock: Its Transmission and Effect to the Indonesias Economy

SUNARYO, DEDY ,

2016 | Tesis | S2 Economics

This paper investigates the effects of oil prices changes on macroeconomic variables. In particular, it focuses on the effects of oil prices changes on wholesale prices, consumer prices, and industrial production in Indonesia. ARDL and VAR-based techniques are developed to quantify the cumulative effect of oil price changes and decompose the total economic effect due to its own shock or other variables. The empirical result shows that the cumulative effect is quite low and most of the variation is mainly explained by the shock in wholesale prices, consumer prices, and industrial production. Oil price shock only explains a small fraction of the variation. The existence of subsidies, combined with the companies cost structure, high portion of food in consumption basket, and the exchange rate movement are the major factors that could explain the low impact of oil price shocks to the Indonesian economy.

Kata Kunci : Oil price, Subsidy, ARDL, VAR