Not All Commodity Price Shocks are Alike for the Macro Economy of Pakistan
Keywords:
Commodity Price shocks; Inflation; Output; Exchange rate; Interest rateAbstract
This study examines the impact of commodity price shocks on the macroeconomic variables of the Pakistan economy by disaggregating commodity price indices into seven different groups, namely food, clothing and footwear, housing, energy, transport, education, health, and others. It uses monthly data from July 2008 to June 2020 and employs the SVAR model for data analysis. The results of our study provide insight that all commodity price shocks are not alike for the macroeconomy of Pakistan, and different commodity price groups affect the economy differently with different magnitude. We note that energy price shock has a dominant positive impact on the interest rate, food price shock on inflation, and health price shock on the exchange rate. Whereas education price shock has a dominant-negative impact on output. The findings of our study may help policymakers control the prices of commodities that are more harmful to the macroeconomy of Pakistan and allow the one that generates a positive impact.
References
Ahad, M., & Anwer, Z. (2020). Asymmetrical relationship between oil price shocks and trade deficit: Evidence from Pakistan. The Journal of International Trade & Economic Development, 29(2), 163-180.
Ahmed, K., Bhutto, N. A., & Kalhoro, M. R. (2019). Decomposing the links between oil price shocks and macroeconomic indicators: Evidence from SAARC region. Resources policy, 61, 423-432.
Akhmedov, E. (2019). The impact of oil price shocks on selected Kazakhstan’s macroeconomic indicators. Journal of International Studies, 12(4), 258-271.
Alom, F. (2011). Economic effect of oil and food price shocks in Asia and Pacific countries; An application of SVAR model. New Zealand Agricultural and Resource Economics Society Conference, 25-26.
Chugtai, M., & Kazmi, M. H. (2014). The interaction between sharp oil prices and economic growth in Pakistan. Research Journal of Economics and Business 4(2), 26-32.
Galesi, A., & Lombardi, M. J. (2009). External shocks and international inflation linkages: A global VAR analysis.
Guo, H., Wang, D., & Ma, X. (2015). A study on the relationship between housing prices and inflation from the perspective of bank credit. Metallurgical & Mining Industry, 9, 473-477.
Hamilton, J. D. (1983). Oil and the macroeconomy since World War II. Journal of Political Economy, 91, 228-248.
Hanif, M. N. (2012). A note on food inflation in Pakistan. Pakistan Economic and Social Review, 183-206.
Jo, S., Karnizova, L., & Reza, A. (2019). Industry effects of oil price shocks: A re-examination. Energy Economics, 82, 179-190.
Khan, M. A., & Ahmed, A. (2011). Macroeconomic effects of global food and oil price shocks to the Pakistan economy: A structural vector autoregressive (SVAR) analysis. The Pakistan Development Review, 2011 Dec, 491-511.
Khan, M. I., Teng, J. Z., Khan, M. K., Jadoon, A. U., & Khan, M. F. (2021). The impact of oil prices on stock market development in Pakistan: Evidence with a novel dynamic simulated ARDL approach. Resources Policy, 70, 101899.
Kiani, A. (2011). Impact of high oil prices on Pakistan's economic growth. International Journal of Business and Social Science, 2(17).
Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99(3), 1053-1069.
Kose, M., & Ayhan. (2002). Explaining business cycles in small open economies ‘How much do world prices matter?. Journal of International Economics, 56, 299-327.
Lee, K., & Ni, N. (2002). On the dynamic effects of oil price shocks: A study using Industry level data. Journal of Monetary Economics, 49, 823-852.
Malik, A. (2016). The impact of oil price changes on inflation in Pakistan. International journal of energy economics and policy, 6(4), 727-737.
Malik, A. (2008). Crude oil price, monetary policy and output: The case of Pakistan. The Pakistan Development Review, 47, 425-436.
Malik, K., Ajmal, H., & Zahid, M. U. (2017). Oil price shock and its impact on the macroeconomic variables of Pakistan: A structural vector autoregressive approach. Malik, KZ, Ajmal H, Zahid M U.," International Journal of Energy Economics and Policy, 7(5), 83-92.
McLeod, S. (2018). Commodity prices, stock prices and economic activity in a small open economy. PhD Thesis
Mendoza, E. G. (1995). The terms of trade, the real exchange rate, and economic fluctuations. International Economic Review, 36 101-137.
Nazir, S., & Qayyum, A. (2015). Impact of oil price and shocks on economic growth of Pakistan: Multivariate analysis. Business and Economics Journal, 6(4), 1.
Papapetrou, E., & Stock, S. (2001). Oil price economic activity and employment in Greece”. Energy Economics, No. 5, 511-532.
Peersman, G., & Van Robays, I. (2012). Cross-country differences in the effects of oil shocks. Energy Economics, 34(5) 1532-1547
Raduzzi, R., & Ribba, A. (2020). The macroeconomics outcome of oil shocks in the small Eurozone economies. The World Economy, 43(1), 191-211.
Rasheed, Q. (2019). Energy prices and the financial performance of different industries in Pakistan. Global Journal of Management and Business Research.
Sims, C. A., & Zha, T. (1998). Bayesian methods for dynamic multivariate models. International Economic Review, 949-968.
Tang, W., Wu, L., & Zhang, Z. (2010). Oil price shocks and their short and long-term effects on the Chinese economy. Energy Economics, 32, 3-14.
Tule, M. K., Afangideh, U. J., Adeleke, A. I., & Ujunwa, A. (2019). Macroeconomic effects of commodity price shocks on ECOWAS members. In The External Sector of Africa's Economy (pp. 163-184). Springer, Cham.
Wang, C.-N., & Le, A. L. (2018). Measuring the macroeconomic performance among developed countries and asian developing countries: Past, present, and future. Sustainability, 10(10), 3664.
Yasmeen, H., Wang, Y., Zameer, H., & Solangi, Y. A. (2019). Does oil price volatility influence real sector growth? Empirical evidence from Pakistan. Energy Reports, 5, 688-703.
Zeshan, M., Malik, W. S., & Nasir, M. (2019). Oil price shocks, systematic monetary policy and economic activity. The Pakistan Development Review, 58(1), 65-81.
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 IBT- JOURNAL OF BUSINESS STUDIES
This work is licensed under a Creative Commons Attribution 4.0 International License.
All articles are published under Creative Commons License term i.e. CC BY 4.0 International
