The impact of oil prices on macroeconomic fundamentals, monetary policy and stock market for eight Middle East and North African countries

Abstract

The objective of this study is to investigate the impact of oil prices on macroeconomic fundamentals as well as monetary policy and stock market for eight oil-exporting and non-oil exports countries in the Middle East and North African region, namely Algeria, Egypt, Iran, Kuwait, Morocco, Saudi Arabia, Tunisia and Turkey. Using quarterly data for the period 1994Q4-2015Q2, with a Panel-ARDL, we may conclude that there are short run dynamic crosssection relationships between, first, oil prices and macroeconomic variables such as growth rate and consumer price index, second, oil prices and money market rate and, third, market capitalization and oil prices. In the long run, dependent variables such as consumer price index and market stock exhibit a cointegration relationship with oil prices. However, no cointegration relationships could be established between oil price variations, monetary policy and growth rate. In this context, we apply a multivariate VAR model to examine responses of all variables to oil price shocks. Results show a relatively high elastic response of economic growth in oil-exporting countries except for Kuwait and, conversely, in oil-importing economics, GDP response to oil prices appear reasonably stable, close to zero. Similarly, the same results can be captured for each oil-importing and exporting country as far as the negative sign exhibited by market response to oil price during the first period caused by financial crisis contagion. The next macroeconomic variable, CPI, shows a positive response to oil .In addition, oil prices appear to have a negligible response on money market rates in the Middle East and North Africa except for Turkey and Egypt.