Investigating the interaction between oil and macroeconomic indicators in the US, UK, and beyond

Abstract

This thesis makes contributions towards understanding the relationships between energy, economic growth, and macroeconomics by focussing on the linkages between oil prices and output growth as well as oil sector profits and the real exchange rate. Following an introductory chapter, Chapters 2 and 3 investigate how the oil price–macroeconomy relationship in the United States and the United Kingdom has evolved over time and draw comparisons between the two countries. As a part of this, I estimate time-varying vector autoregression models using a rollingwindow approach. I then used impulse response functions to estimate the size of an oil price shock of a standard magnitude. The findings in these chapters identify differences and similarities between the two countries in question, and suggest that the oil price–macroeconomy relationship is sensitive to variable choice, model specification, and sample period. Chapter 4 studies the existence of resource curse and the Dutch disease on a global scale in oil-exporting countries. Using a unique, large-N, large-T dataset, I find evidence of a long-run relationship between rents in the oil sector and the real exchange rate of oil exporters as well as short-run adjustment towards an equilibrium. Although non-OPEC members exhibit behaviour in line with theory, the impact on OPEC countries’ real exchange rates is the largest.