Luận văn thạc sĩ UEH the relationship between oil price fluctuation and vietnams macro economy

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UNIVERSITY OF ECONOMICS

HO CHI MINH CITY

VIETNAM

INSTITUTE OF SOCIAL STUDIES

THE HAGUE

THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE RELATIONSHIP BETWEEN OIL PRICE FLUCTUATION

AND VIETNAM'S MACRO-ECONOMY

BY

LE THUANBINH

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, June 2011

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UNIVERSITY OF ECONOMICS

HO CHI MINH CITY

VIETNAM

INSTITUTE OF SOCIAL STUDIES

THE HAGUE

THE NETHERLANDS

VIETNAM -NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE RELATIONSHIP BETWEEN OIL PRICE FLUCTUATION AND

VIETNAM'S MACRO-ECONOMY

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

LETHUANBINH

Academic Supervisor:

DR. DINH CONG KHAI

HO 'CHI MINH CITY, June 2011

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ACKNOWLEDGEMENT

First of all, I would like to express my deep gratitude to my supervisor, Dr. Dinh

Cong Khai, for his encouragement and willing supports during the thesis writing

process.

I would like to give thanks to Mr. Phung Thanh Binh, who had provided sources of

data and instructed econometric techniques for my thesis.

I wish to express my gracefulness to the Vietnam-Netherlands Programme for M.A in

Development Economics which provides us chance to access the best conditions for

our study. I am in debt of all staffs of the Programme for their devoted supports

during the time I studied there.

I am graceful to all professors who devoted their enthusiasm and knowledge on ·

lectures from which we have benefited greatly. What I have learned from these

lectures not only help me have basic knowledge for doing this thesis but also provide

me profound understanding on economics particularly and life generally .

I owe many friends a debt of gratitude for all their encouragement. I am graceful to

all my classmates for their co-operations during the course.

Last but not least, I am greatly indebted my family. My parents, especially my Mom

always encourage me and save all their love to me unconditionally.

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CERTIFICATION

I certify that the substance of this thesis has not been submitted for any degree and is

not being currently submitted for any other degree.

This thesis is the result of my own independent work with the guidance of the

supervisor, except where otherwise stated. Other sources are acknowledged by

explicit references.

LE THUAN BINH

June,2011

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ABSTRACT

The impact of oil price shocks on the macro-economy has received a great deal of

attention since the 1970s. Many empirical studies found a significant positive effect

between oil price shocks and consumer price index (CPI), and this higher CPI will

retard GDP. A key feature of this paper investigates the relationship between the

world oil price and Vietnam's macro-economy based on monthly time series dataset

from 2001 Q 1 to 2009Q4 , using the method of multivariate vector autoregression

(V AR). The findings show that the world oil price affects the economic growth and

inflation of Vietnam significantly. The results of the Granger causality test, impulse

response functions, and variance decomposition analysis all showed that an increase

in oil price will cause positive relationship to consumer price index, and this higher

consumer price index causes negative affect on GDP .

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TABLE OF CONTENTS

CHAPTER I: INTRODUCTION

1.1. Problem Statement ................................................................................... 1

1.2. Research Objectives ................................................................................. 4

1.3. Research Questions ................................................................................... 5

1.4. Research Methodology ............................................................................. 5

1.5. Thesis Structure ....................................................................................... 5

CHAPTER II: LITERATURE REVIEW

2.1. The relationship between oil price and inflation ..................................... 6

2.2. The relationship between oil price and industrial production .................. 6

2.3. Six oil shocks in history ........................................................................... 7

2.3 .1. Crude oil price in the Middle East in period 1973-197 5 ............... 7

2.3.2. Iranian revolution and oil price fluctuation in 1979 ...................... 8

2.3.3. The severe fall of oil price in 1980s .............................................. 8

2.3.4. Oil price shock in 1990 .................................................................. 9

2.3.5. The downtrend of oil price in 2001 ............................................... 9

2.3.6. The tremendous oil price shock in 2007-2008 .............................. 9

2.4. How higher oil prices affect the global economy .................................... 10

2.4.1. Quantifying the impact of oil price in OECD countries ................ 11

2.4.2. Quantifying the impact of oil price in developing countries ......... 13

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