An Investigation of Interaction between OPEC Reference Basket Price Growth Rate and Economic Growth of OECD Countries

Using Vector Autoregression (VAR) model, this paper examines the interaction between OPEC reference basket price fluctuations and economic growth of the most important OECD countries (America, England, Germany, France, Italy, Canada and Japan) for the period 1980:1-2005:1. The results based on cointegration test, impulse response function, variance decomposition and Granger causality test show that the oil price effect on real GDP level of OECD countries is limited to the short-run. Moreover, Granger causality test shows a unidirectional cause of OPEC reference basket price growth rate to real GDP growth rate of these countries, but not vice versa. In addition, there is a negative effect of the oil stocking on the OPEC reference basket price and positive effect on OECD economic growth when an oil price shock happens.