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Assessing the Mechanism of Oil Price Fluctuation and Fiscal Policy Response in the Malaysian Economy

Jurnal Ekonomi Malaysia

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Title Assessing the Mechanism of Oil Price Fluctuation and Fiscal Policy Response in the Malaysian Economy
 
Creator Mohamed Yusoff, Nora Yusma
 
Subject Oil price shock; dynamic effect; fiscal policy;volatility; Malaysia
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Description ABSTRACTThe present paper analyzes the effects of oil price fluctuation on the economy;and fiscal policy response to the Malaysian economy. The data are analyzed utilizing a co-integration test, variance decomposition (VDC) and impulse response function (IRF) analysis under the unrestricted vector autoregression (VAR) methodology. The empirical findings of thisstudy suggest that, in the short run, the Malaysia economy benefits from higher oil prices, as oil price shocks positively affect oil revenue. However, the real GDP of Malaysia is vulnerable to oil price fluctuations in the short term horizon.Meanwhile, oil price hikes exhibit an increasing trend for both GDP and total subsidy in the long run. Also, the results confirm that the changes in world oil prices have a significant short term impact on total government expenditure.These confirm that that fiscal policy is the main mechanism channel that determines the degree to which oil price shocks affect the economy. The study suggests that the adoption of expansionary fiscal policies during oil price shockscan facilitate rapid economic growth in the long run, as long as stable and persistent economic policies exist within the macroeconomic framework.Keywords: Oil price shock; dynamic effect; fiscal policy;volatility; MalaysiaABSTRAKKajian ini menganalisis kesan turun naik harga minyak dan tindak balas dasar fiskal dalam ekonomi Malaysia. Data dianalisis menggunakan analisis Variance Decomposition (VDC) dan Impulse Response Function (IRF) di bawahunrestricted autoregression vector (VAR) metodologi. Hasil kajian empirikal ini menunjukkan bahawa, dalam jangka masa pendek, ekonomi Malaysia menerima manfaat daripada kenaikan harga minyak yang tinggi, disebabkan kejutanharga minyak member kesan positif kepada hasil minyak. Walau bagaimanapun, KDNK sebenar Malaysia terdedah kepada turun naik harga minyak di dalam jangka masa pendek. Sementara itu, kenaikan harga minyak menunjukkan trend yang meningkat bagi kedua-dua KDNK dan jumlah subsidi untuk jangka masa panjang. Keputusan juga mengesahkan bahawa perubahan dalam harga minyak dunia mempunyai kesan jangka pendek yang besar ke atas jumlah perbelanjaan kerajaan. Ini mengesahkan bahawa dasar fiskal adalah saluran mekanisme utama yang menentukan sejauh mana kejutan harga minyak menjejaskan ekonomi. Kajian ini menunjukkan bahawa penggunaan dasar fiskal mengembang ketika kejutan harga minyak boleh meransang pertumbuhan ekonomi yang pesat untuk jangka masa panjang, selagi wujudnya dasar ekonomi yang stabil dan polisi yang konsisten dalam kerangka ekonomi makro.Kata kunci: Kejutan harga minyak; kesan dinamik; dasar fiskal; turun naik; Malaysia
 
Publisher Universiti Kebangsaan Malaysia
 
Contributor —
 
Date 2013-12-31
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://ejournal.ukm.my/jem/article/view/7266
 
Source Jurnal Ekonomi Malaysia; Vol 47, No 2 (2013): Jurnal Ekonomi Malaysia; 69-81
0126-1962
 
Language eng
 
Relation http://ejournal.ukm.my/jem/article/view/7266/2920