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The relationship between oil price fluctuation and Vietnam’s macro-economy

By Le Thuan Binh (VNP 15)

Supervisor: Dr. Dinh Cong Khai

Abstract

The impact of oil price shocks on the macro-economy has received a great deal of attention since the 1970s. Many empirical studies found a significant positive effect between oil price shocks and consumer price index (CPI), and this higher CPI will retard GDP. A key feature of this paper investigates the relationship between the world oil price and Vietnam’s macro-economy based on monthly time series dataset from 2001Q1 to 2009Q4 , using the method of multivariate vector autoregression (VAR). The findings show that the world oil price affects the economic growth and inflation of Vietnam significantly. The results of the Granger causality test, impulse response functions, and variance decomposition analysis all showed that an increase in oil price will cause positive relationship to consumer price index, and this higher consumer price index causes negative affect on GDP.

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