An Empirical Analysis of the Relationship Between Oil Prices and Selected Macroeconomic Indicators in the Philippines

Date

6-2025

Degree

Bachelor of Science in Economics

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Emmanuel Genesis Andal

Committee Member

Aaron T. Castillo, Gideon P. Carnaje, Ma. Angeles O. Catelo

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Abstract

The continued dependence of the Philippines on imported oil leaves the economy vulnerable to fluctuations in the global oil market. Over the past decade, the external shocks posed significant risks to the country’s macroeconomic indicators. Hence, this study analyzed the dynamic relationship between world and local oil price changes and selected macroeconomic indicators, namely, inflation rate, exchange rate, oil consumption, unemployment, and Gross Domestic Product from January 2010 to December 2024.

This study employed VAR analysis and conducted tests for stationarity through the Correlogram and an Augmented Dickey-Fuller test. All variables, except unemployment, exhibited non-stationarity. Thus, the detrending approach was necessary to ensure the result’s reliability. After achieving stationarity, the VAR model showed that local oil prices and inflation reacted promptly, while GDP displayed a one-quarter lag in its response. Meanwhile, the exchange rate and interest rate responded only after a three-quarter delay, unemployment emerged by the fifth quarter, and oil consumption showed no statistically significant response. Subsequently, the IRF analysis indicated that the effects of these shocks were temporary, with most indicators stabilizing over time. The cyclical behavior observed in GDP emphasized the country’s patterns of adjustment to oil prices. Meanwhile, the FEVD results reinforced that the majority of forecast error variances across variables are predominantly explained by their own shocks.

The temporary nature of oil price shocks provided policymakers to design long-term strategies such as diversifying energy sources and strengthening investments in the domestic oil refining capacity to alleviate the risks of fluctuations in oil prices.

Language

English

LC Subject

Petroleum industry and trade, Petroleum products—Prices, Macroeconomics

Location

UPLB College of Economics and Management (CEM)

Call Number

LG 993.5 2025 E2 B35

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Document Type

Thesis

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