Mr. Paul Cashin, Mr. Kamiar Mohaddes, and Mr. Mehdi Raissi
This paper analyzes spillovers from macroeconomic shocks in systemic economies (China, the Euro Area, and the United States) to the Middle East and North Africa (MENA) region as well as outward spillovers from a GDP shock in the Gulf Cooperation Council (GCC) countries and MENA oil exporters to the rest of the world. This analysis is based on a Global Vector Autoregression (GVAR) model, estimated for 38 countries/regions over the period 1979Q2 to 2011Q2. Spillovers are transmitted across economies via trade, financial, and commodity price linkages. The results show that the MENA countries are more sensitive to developments in China than to shocks in the Euro Area or the United States, in line with the direction of evolving trade patterns and the emergence of China as a key driver of the global economy. Outward spillovers from the GCC region and MENA oil exporters are likely to be stronger in their immediate geographical proximity, but also have global implications.
This paper extends the long-run growth model of Esfahani et al. (2009) to a labor exporting country that receives large inflows of external income?the sum of remittances, FDI and general government transfers?from major oil-exporting economies. The theoretical model predicts real oil prices to be one of the main long-run drivers of real output. Using quarterly data between 1979 and 2009 on core macroeconomic variables for Jordan and a number of key foreign variables, we identify two long-run relationships: an output equation as predicted by theory and an equation linking foreign and domestic inflation rates. It is shown that real output in the long run is shaped by: (i) oil prices through their impact on external income and in turn on capital accumulation, and (ii) technological transfers through foreign output. The empirical analysis of the paper confirms the hypothesis that a large share of Jordan's output volatility can be associated with fluctuations in net income received from abroad. External factors, however, cannot be relied upon to provide similar growth stimuli in the future, and therefore it will be important to diversify the sources of growth in order to achieve a high and sustained level of income.
This paper investigates the global macroeconomic consequences of falling oil prices due to the oil
revolution in the United States, using a Global VAR model estimated for 38 countries/regions
over the period 1979Q2 to 2011Q2. Set-identification of the U.S. oil supply shock is achieved
through imposing dynamic sign restrictions on the impulse responses of the model. The results
show that there are considerable heterogeneities in the responses of different countries to a U.S.
supply-driven oil price shock, with real GDP increasing in both advanced and emerging market
oil-importing economies, output declining in commodity exporters, inflation falling in most
countries, and equity prices rising worldwide. Overall, our results suggest that following the U.S.
oil revolution, with oil prices falling by 51 percent in the first year, global growth increases by
0.16 to 0.37 percentage points. This is mainly due to an increase in spending by oil importing
countries, which exceeds the decline in expenditure by oil exporters.