Reconsidering the Relationship between Oil Prices and Industrial Production: Testing for Cointegration in some of the OECD Countries
Keywords:Crude Oil Price, Industrial Production, Cointegration, VAR
This paper investigates the effects of crude oil prices on the industrial production for some of the OECD countries. According to it, the empirical results sign that there is statistical meaningful short term causality from crude oil price to industrial production in all countries except France. In France however, causality is from industrial production to oil price in short run. The error correction mechanism is run for US. The causality is from oil price to industrial production in long run for US. These results show us that oil prices do affect industrial production index. Another interesting finding that, similar results were observed for oil exporting and importing countries such as Saudi Arabia and Iran as well. This situation is important that firm sensitivity towards oil price shows a similarity among the countries.