Evaluating the mechanism of oil price shocks and fiscal policy responses in the Malaysian economy

• Main Authors: Bekhet H.A., Yusoff N.Y.M.
• Other Authors: 37100908800
• Format: Conference paper
• Published: Institute of Physics Publishing 2023
• Subjects: Malaysia; Economics; Adverse effect; Empirical findings; Fiscal policies; Government expenditure; Impulse response functions; Long-term period; Oil price shocks; Variance decomposition; conference proceeding; expenditure; fiscal policy; Gross Domestic Product; oil trade; policy analysis; Costs
• Institution: Universiti Tenaga Nasional

The paper aims to explore the symmetric impact of oil price shock on economy, to understand its mechanism channel and how fiscal policy response towards it. The Generalized Impulse Response Function and Variance Decomposition under the VAR methodology were employed. The empirical findings suggest that symmetric oil price shock has a positive and direct impact on oil revenue and government expenditure. However, the real GDP is vulnerable in a short-term but not in the long term period. These results would confirm that fiscal policy is the main mechanism channel that mitigates the adverse effects oil price shocks to the economy. � Published under licence by IOP Publishing Ltd.