This study analyzes the impact of the world oil prices shock on Indonesia's domestic economy using a Structural Vector Autoregression (SVAR) model. The variables used are divided into two groups. The first group describes the world oil market, including world oil production, world economic activity, and world oil prices. The second group describes the domestic economy comprising variables of GDP, CPI, discount rate and rupiah exchange rate. The use of this model can remove impulse response anomalies or puzzle such as price puzzles and exchange rate puzzles that are commonly found in studies that use VARs model in small open economy countries. Estimation results show that the shock of world oil prices significantly affects the domestic economy. The impulse response results show that the shock caused by world oil prices responded differently at the beginning of the period but returned to the balance line in the long run.
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To cite this article: Handoyo, R. D., Wibowo, F. A., Padilla, M. E., Ridzuan, A. R., Md Razak, M. I. (2020). The Impact of Oil Shock on Domestic Economy: The Case of Indonesia, International Journal of Academic Research in Accounting, Finance and Management Sciences 10 (1): 334-344.
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