Effects of world oil price fluctuation on Vietnamese economy

Abstract

The objectives of this research is to analyze the cause of world oil price fluctuation and evaluate the effect of oil price
shocks to Vietnamese inflation and growth. We follow Kilian’s method (2009) to divide oil price shocks and use VAR
model to analyze the effect of oil price shocks in 1975- 2015 period and evaluated effect of oil price shocks to Vietnamese
inflation and growth in 1997- 2015 period. The results indicate that aggregate demand and oil specific demand shocks
are the main contributor of world oil price fluctuation and the oil supply shock has a modest and decreasing impact on
world oil price fluctuation. Positive oil supply and aggregate demand shocks lead to growth of Vietnamese GDP while
oil specific demand shock causes a decrease in GDP growth. An unexpected increase in oil supply causes a decline in
inflation rate whereas aggregate demand and oil specific demand shocks are the reasons of rising inflation in Vietnam.