Asymmetric Pass-Through Effects of Oil Price on Economic Growth in Malaysia
This empirical analysis intends to examine the asymmetric response of economic growth when the oil price changes in Malaysia by applying threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) cointegration and asymmetric adjustment models. The results revealed that the oil price has an asymmetric impact on Malaysian economic growth. We found that when oil price increases this accelerates economic growth; however, the speeds of adjustment back to the steady position were insignificant. When the oil price dropped, oil price significantly and negatively affects economic growth for a period of time and then returns back to its normal position. The results revealed that Malaysian economic growth constantly benefits when the oil price increases and is temporarily negatively affected when oil prices drop. The results have important policy implications. This suggests that it is essential to the policy makers to consider different policy responses for hikes and drops in oil prices. The result implies that negative oil price shock would lower economic growth, however it is temporary. Therefore, policy makers might response by implementing expansionary monetary policy to stimulate economic growth. The explanation is intuitive. For example, an increase in the money supply would normally pull down the interest rate which would further encourage consumption and investment, stimulate economic growth, which would increase oil demand and push up its price.
Aguiar-Conraria, L., & Soares, M. J. (2011). Oil and the macroeconomy: Using wavelets to analyze old issues. Empirical Economics, 40(3), 645-655. https://doi.org/10.1007/s00181-010-0371-x
Ahmad, A. H., & Aworinde, O. B. (2016). The role of structural breaks, nonlinearity and asymmetric adjustments in African bilateral real exchange rates. International Review of Economics & Finance, 45, 144-159. https://doi.org/10.1016/j.iref.2016.05.004
Ahmad, A. H., & Hernandez, R. M. (2013). Asymmetric adjustment between oil prices and exchange rates : Empirical evidence from major oil producers and consumers. Journal of International Financial Markets, Institutions & Money, 27, 306-317. https://doi.org/10.1016/j.intfin.2013.10.002
Ahmed, H. J. A., & Wadud, I. K. M. M. (2011). Role of oil price shocks on macroeconomic activities: An SVAR approach to the Malaysian economy and monetary responses. Energy Policy, 39(12), 8062-8069. https://doi.org/10.1016/j.enpol.2011.09.067
Aizenman, J., & Pinto, B. (2004). Managing volatility and crises: A practitioner's guide overview. National Bureau of Economic Research., (No. w10602), 1-40. https://doi.org/10.3386/w10602
Aliyu, S. U. R. (2009). Impact of oil price shock and exchange rate volatility on economic growth in Nigeia: An empirical investigation. MPRA Working Paper No. 16319. https://doi.org/10.2139/ssrn.1346418
Aliyu, A. J., & Tijjani, S. M. (2015). Asymmetric cointegration between exchange rate and trade balance in Nigeria. Cogent Economics & Finance, 3(1), 1045213. https://doi.org/10.1080/23322039.2015.1045213
Alley, I., Asekomeh, A., Mobolaji, H., & Adeniran, Y. A. (2014). Oil price shocks and Nigerian economic growth. European Scientific Journal, 10(19), 375-391.
Baffes, J., Kose, M. A., Ohnsorge, F., & Stocker, M. (2015). The great plunge in oil prices: Causes, consequences, and policy responses. World Bank Group, 1-51. https://doi.org/10.2139/ssrn.2624398
Bala, U., Songsiengchai, P., & Chin, L. (2017). Asymmetric Behavior of Exchange Rate Pass-Through in Thailand, Economics Bulletin, 37(2), 1289-1297.
Bala, U., & Chin, L. (2018). Asymmetric impacts of oil price on inflation: An empirical study of African OPEC. Energies, 11(3017), 1-21. https://doi.org/10.3390/en11113017
Beechey, M., & Osterholm, P. (2008). Revisiting the uncertain unit root in GDP and CPI: testing for non-linear trend reversion. Economic Letters, 100(2), 221-223. https://doi.org/10.1016/j.econlet.2008.01.013
Chang, H.-L., Su, C. W., Zhu, M.-N., & Liu, P. (2010). Long-run purchasing power parity and asymmetric adjustment in BRICs. Applied Economics Letters, 17(11), 1083-1087. https://doi.org/10.1080/00036840902817458
Chang, T., Lu, Y.-C., Tang, D. P., & Liu, W.-C. (2011). Long-run purchasing power parity with asymmetric adjustment: Evidence from African countries. Applied Economics, 43(2), 231-242. https://doi.org/10.1002/ijfe.386
Chan, K. S. (1993). Consistency and limiting distribution of the least squares estimator of a Threshold Autoregressive Model, The Annals of Statistics, 21, 520-533. https://doi.org/10.1214/aos/1176349040
Chen, J., Lee C., & Goh, L. (2013). Exchange rate and oil price: asymmetric adjustment. Applied Economics Letters, 20(10), 987-990. https://doi.org/10.1080/13504851.2013.770118
Ekong, C. N., & Effiong, E. L. (2015). Oil price shocks and Nigeria's macroeconomy: Disentangling the dynamics of crude oil market shocks. Global Economic Review, 16(6), 920-935. https://doi.org/10.1177/0972150915597594
Enders, W., & Siklos, P. L. (2001). Cointegration and threshold adjustment. Journal of Business & Economic Statistics, 19(2), 166-176. https://doi.org/10.1198/073500101316970395
Fattouh, B. (2010). The dynamics of crude oil price differentials. Energy Economics, 32(2), 334-342. https://doi.org/10.1016/j.eneco.2009.06.007
Hooker, M. A. (2002). Are oil shocks inflationary? Asymmetric and nonlinear specifications versus changes in regime. Journal of Money, Credit and Banking, 34(2), 540-561. https://doi.org/10.1353/mcb.2002.0041
Ibrahim, M. H., & Chancharoenchai, K. (2013). How inflationary are oil price hikes? A disaggregated look at Thailand using symmetric and asymmetric cointegration models. Journal of the Asia Pacific Economy, 19(3), 409-422. https://doi.org/10.1080/13547860.2013.820470
Izraf, M., Aziz, A., & Dahalan, J. (2015). Oil price shocks and Macroeconomic activities in Asean-5 countries: A panel VAR approach. Eurasian Journal of Business and Economics, 8(16), 101-120. https://doi.org/10.17015/ejbe.2015.016.06
Jammazi, R., Lahiani, A., & Nguyen, D. K. (2015). A wavelet-based nonlinear ARDL model for assessing the exchange rate pass-through to crude oil prices. Journal of International Financial Markets, Institutions and Money, 34, 173-187. https://doi.org/10.1016/j.intfin.2014.11.011
Jbir, R., & Zouari-Ghorbel, S. (2009). Recent oil price shock and Tunisian economy. Energy Policy, 37(3), 1041-1051. https://doi.org/10.1016/j.enpol.2008.10.044
Kriskkumar, K. & Naseem, N. A. M. (2019). Analysis of oil price effect on economic growth of ASEAN net oil exporters, Energies, 12(17), 3343. https://doi.org/10.3390/en12173343
Lee, K., Ni, S., & Ratti, R. A. (1995). Oil shocks and the macroeconomy: the role of price variability. Energy Journal, 16(4), 39-56. https://doi.org/10.5547/ISSN0195-6574-EJ-Vol16-No4-2
Liew, V. K., & Balasubramaniam, A. (2017). Oil price shocks and sectoral outputs: Empirical evidence from Malaysia. Economic Bulletin, 37(1), 38-47.
Liu, J.-Y., Lin, S.-M., Xia, Y., Fan, Y., & Wu, J. (2015). A financial CGE model analysis: Oil price shocks and monetary policy responses in China. Economic Modelling, 51, 534-543. https://doi.org/10.1016/j.econmod.2015.08.025
Madueme, S., & Nwosu, O. C. (2010). Oil price shocks and macroeconomic variables in Nigeria. International Journal of Research in Arts and Social Sciences, 2, 333-342.
Mork, K. A., Olsen, O., & Mysen, H. T. (1994). Macroeconomic responses to oil price increases and decreases in seven OECD countries. Energy Journal, 15(4), 19-35. http://doi.org/10.5547/ISSN0195-6574-EJ-Vol15-No4-2
Nazlioglu, S. (2011). World oil and agricultural commodity prices: Evidence from nonlinear causality. Energy Policy, 39(5), 2935-2943. http://doi.org/10.1016/j.enpol.2011.03.001
Noordin, N. S. (2009). Oil price shock and malaysian sectoral stock market return (Unpublished Masters Thesis). University of Malaya, Kuala Lumpur.
Olomola, P. A & Adejumo, A. V. (2006). Oil price shock and macroeconomic activities in Nigeria. International Research Journal of Finance and Economics, 3(3), 28-34.
Pal, D., & Mitra, S. K. (2015). Asymmetric impact of crude price on oil product pricing in the United States: An application of multiple threshold nonlinear autoregressive distributed lag model. Economic Modelling, 51, 436-443. https://doi.org/10.1016/j.econmod.2015.08.026
Puah, C. H., Liew, V. K. S. & Tang, M. M. J. (2017). The pass-through effect of interest rate and asymmetric adjustment in Indonesia. Economic Annals XXI, 166(6-7), 61-66. https://doi.org/10.21003/ea.V166-12
Rafiq, S., Salim, R., & Bloch, H. (2009). Impact of crude oil price volatility on economic activities: An empirical investigation in the Thai economy. Resources Policy, 34(3), 121-132. https://doi.org/10.1016/j.resourpol.2008.09.001
Rahman, S., & Serletis, A. (2010). The asymmetric effects of oil price and monetary policy shocks: A nonlinear VAR approach. Energy Economics, 32(6), 1460-1466. http://doi.org/10.1016/j.eneco.2010.06.003
Razmi, F., Azali, M., Chin, L., & Habibullah, M. S. (2016). The role of monetary transmission channels in transmitting oil price shocks to prices in ASEAN-4 countries during pre- and post-global financial crisis. Energy, 101, 581-591. https://doi.org/10.1016/j.energy.2016.02.036
Shelley, G. L., & Wallace, F. H. (2011). Further evidents regarding nonlinear trend reversion of real GDP and the CPI. Economic Letters, 112(1), 56-59. https://doi.org/10.1016/j.econlet.2011.03.014
Wan, S. D., & Lee, O. (2001). Tests for asymmetry in possibly nonstationary time series data. Journal of Business & Economic Statistics, 19(2), 233-244. https://doi.org/10.1198/073500101316970458
Wong, K. K. S., & Shamsudin, M. N. (2017). Impact of crude oil price, exchange rates and real GDP on Malaysia's food price fluctuations: Symmetric or asymmetric? International Journal of Economics and Management, 11(May), 259-275.
Xuan, P. P., & Chin, L. (2015). Pass-through Effect of Oil Price into Consumer Price : An Empirical Study. International Journal of Economics and Management, 9(S), 143-161.
Xuan, P. P., Chin, L., & Ismail, N. W. (2018). Energy consumption and real GDP nexus: a Malaysian case demonstrating the importance of trade openness. International Journal of Business and Society, 19(2), 449-463.
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.