The impact of oil prices changes on the economic performance of Kazakhstan

Abstract

A major property of both economic and financial time series data has been their highly skewed nature throughout various stages of the economic cycle. Oil price fluctuations are considered to be one of the key macroeconomic parameters that are used to predict the behavior of various phases of economic development. Currently, oil prices are extremely volatile, which leads to significant changes in the macroeconomic indicators of both oil-importing and oil-exporting countries, which subsequently determines the further vector of development of such countries. For this reason, this research paper examines the impact of oil price spikes on the economic condition of the Kazakhstan Republic. In accordance with the existing models which describes an economic relationships, the main focus of this paper lies within eight macroeconomic indicators: real GDP, government expenditures, net export, investments , inflation rate , interest rate, unemployment rate and money supply. To examine the influence of oil price shocks on these variables, a vector autoregression model, with data from year 2000 to 2021 was used. The empirical results of the analysis demonstrate the significant positive correlation between oil prices, real GDP, government expenditures, net export, money aggregates M2 and some negative influence with unemployment rate. Variance decomposition function results of VAR model displays that change in oil prices explain the positive behavior of the indicators, especially real GDP. Finally, impulse response function results, numerically and graphically proves the positive impact of price shocks to economy of Kazakhstan, showing that in a short and medium term, an increase in oil prices leads to increase in GDP.