Oil charges financial undertaking And Inflation: Evidence For Some Asian Countries

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Acknowledgement

Iwould take this opening to express gratitude my study supervisor, family and associates for their support and guidance without which this study would not have been possible.

DECLARATION

I, [type your full first titles and last name here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for learned examination in the direction of any qualification. Furthermore, it represents my own attitudes and not inevitably those of the University.

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Abstract

In this research proposal, we will discuss recent economic research that demonstrates that the objectives of price stability and stabilizing economic activity are often likely to be mutually reinforcing. We will also discuss the oil prices-macroeconomy relationship by means of studying the impact of oil price shocks on both economic activity and consumer price indexes for six Asian countries over the period 1975Q1-2002Q2. We will also suggest that oil prices have a significant effect on both economic activity and price indexes, although the impact will limited to the short run and more significant when oil price shocks are defined in local currencies.

Contents

CHAPTER 1: INTRODUCTION1

Background of the study1

Problem Statement4

The Model5

Limitation of the Study6

Reliability7

Validity8

Ethical Concern9

Research Question10

CHAPTER 2: LITERATURE REVIEW12

Macroeconomic implications of oil cost volatility12

Oil cost and the Economy14

CHAPTER 3:PROPOSED METHODOLOGY17

Research Design17

Instrument (interview/ Questionnaire)22

Data Collection Method24

Chapter 1: Introduction

Background of the study

Since early 2003, the price of crude oil has more than tripled, increasing from around $30 to over $90 today. In addition to little excess OPEC production capacity, and an uncertainty premium brought about by the war in Iraq and other geopolitical tensions around the world, part of the strength in oil prices is attributed to the strength of Chinese, Indian, Asian and European oil demand. (Backus 1992)

Economic research has long documented a relationship between oil price shocks and slowing U.S. economic activity, with the consequences being slower GDP growth and possible recession, higher unemployment rates, and a higher price level. Some of theearlier studies include Pierce and Enzler (1974), Rasche and Tatom (1977), Mork and Hall (1980), Gisser and Goodwin (1986) and the Energy Modeling Forum-7 study documented in Hickman et al. (1987). Darby (1982), Burbidge and Harrison (1984), and Bruno and Sachs (1982, 1985) documented similar oil-price-economy relationships for countries other than the United States. Hamilton (1983) extended the analysis period toshow that all but one of the U.S. post-World-War-II recessions were preceded by sharply rising oil prices. The apparent lack of a favorable response in economic activity to fallingoil prices led to later studies—such as Ferderer (1996), Hamilton (1996, 2003), Davis and Haltiwanger (1998) and Balke, Brown and Yucel (2002)—that allowed for anasymmetric relationship between oil price shocks and economic activity. (Backus 1992)

Several studies contend the apparent relationship between oil price shocks and aggregate economic activity comes through the monetary policy. Bohi (1989, 1991) and Bernanke, Gertler and Watson (1997) argue that contractionary monetary policy accounted for much of the decline in aggregate economic activity following an oil ...