ARTICLE IN PRESS

Resources Policy 34 (2009) 121132

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Resources Policy
journal homepage: www.elsevier.com/locate/resourpol

Impact of crude oil price volatility on economic activities: An empirical

investigation in the Thai economy
Shuddhasawtta Raq, Ruhul Salim , Harry Bloch
School of Economics & Finance, Curtin University of Technology, Perth, WA 6845, Australia

a r t i c l e in fo

abstract

Article history:
Received 15 April 2008
Received in revised form
4 September 2008
Accepted 11 September 2008

This paper empirically examines the impact of oil price volatility on key macroeconomic indicators of
Thailand. Following Andersen et al. [2004. Analytical evaluation of volatility forecasts. International
Economic Review 45(4), 10791110], quarterly oil price volatility is measured by using the realized
volatility (RV). The impact of the oil price volatility is investigated using the vector auto-regression
(VAR) system. The Granger causality test, impulse response functions, and variance decomposition
show that oil price volatility has signicant impact on macroeconomic indicators, such as
unemployment and investment, over the period from 1993Q1 to 2006Q4. Perrons [1997. Further
evidence on breaking trend functions in macroeconomic variables. Journal of Econometrics 80(2),
355385] test identies structural breaks in all the concerned variables during the time of the Asian
Financial Crisis (19971998). A VAR for the post-crisis period shows that the impact of oil price volatility
is transmitted to budget decit. The oating exchange rate regime introduced after the crisis may be the
key contributor to this new channel of impact.
Crown Copyright & 2008 Published by Elsevier Ltd. All rights reserved.

JEL Classicaton:
C32
Q43
O13
Keywords:
Oil price volatility
Thailand
Granger causality test
Impulse response function
Variance decomposition

Introduction
Oil, like other primary commodities, is a vital input in the
production process of an economy. Primary commodity prices
affect aggregate price levels positively as commodities are used as
raw materials in industrial production (Bloch et al., 2006).
Similarly, oil is needed to generate electricity, run production
machinery, and transport the output to the market. Further,
volatility in oil prices may reduce aggregate output temporarily as
it delays business investment by raising uncertainty or by
inducing expensive sectoral resource reallocation (Guo and
Kliesen, 2005). Although industrialized developed countries seem
to be more dependent on oil, evidence shows that the demand for
oil in developing countries is on an increasing trend (Birol, 2007).
Most of the earlier studies concerning oil price shocks or
volatility and economic activities have been conducted in the
context of developed economies; for example Hamilton (1983),
Burbridge and Harrison (1984), Gisser and Goodwin (1986), Mory
(1993), Mork and Olsen (1994), and Ferderer (1996), among
others. Research concerning the impact of oil price volatility in the

 Corresponding author. Tel.: +618 9266 4577.

E-mail address: Ruhul.Salim@cbs.curtin.edu.au (R. Salim).

context of developing countries is very limited. This is partly due

to the lack of reliable data and partly due to the less historical
dependence of these countries on oil. However, since these
countries are presently experiencing increased demand for
energy, a through investigation of the impact of oil price
variability on these economies is warranted. This paper aims to
analyze the impact of oil price volatility on different macroeconomic variables of Thailand, such as output, price level,
unemployment, interest rate, scal decit, investment, and trade
balance.
Thailand serves as a suitable case for four main reasons. Firstly,
the Thai economy has a convincing track record of growth through
privatization and widespread trade liberalization compared with
other developing economies. Secondly, since Thailand has limited
domestic oil production and reserves, and imports make up a
signicant portion of the countrys oil consumption; the Thai
economy seems to be relatively more vulnerable to oil price
changes compared with other developing countries with greater
oil supply security. Thirdly, there exists no prior study of this type
for Thailand. Finally, the accuracy and availability of the relevant
data play an important role in choosing Thailand for study.
The remainder of the paper is organized as follows. Macroeconomic implications of oil price volatility offers two different
channels through which oil price volatility may impact the

0301-4207/$ - see front matter Crown Copyright & 2008 Published by Elsevier Ltd. All rights reserved.
doi:10.1016/j.resourpol.2008.09.001

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S. Raq et al. / Resources Policy 34 (2009) 121132

macroeconomy. Oil price and the economy presents a critical

review of earlier literature followed by an analytical framework in
Data sources and analytical framework. Empirical results from the
estimation are presented in Analysis of ndings. Conclusion and
policy implications are offered in the nal section.

Macroeconomic implications of oil price volatility

It is now well established in both empirical and theoretical
literature that oil price shocks exert adverse impacts on different
macroeconomic indicators through raising production and operational costs. Alternatively, large oil price changeseither increases or decreases, i. e. volatilitymay affect the economy
adversely because they delay business investment by raising
uncertainty or by inducing costly sectoral resource reallocation.
Bernanke (1983) offers theoretical explanation of the uncertainty channel by demonstrating that, when the rms experience
increased uncertainty about the future price of oil then it is
optimal for them to postpone irreversible investment expenditures. When a rm is confronted with a choice of whether to add
energy-efcient or energy-inefcient capital, increased uncertainty born by oil price volatility raises the option value associated
with waiting to invest. As the rm waits for more updated
information, it forgoes returns obtained by making an early
commitment, but the chances of making the right investment
decision increase. Thus, as the level of oil price volatility increases,
the option value rises and the incentive to investment declines
(Ferderer, 1996). The downward trend in investment incentives
ultimately transmits to different sectors of the economy.
Hamilton (1988) discusses the sectoral resource allocation
channel. In this study by constructing a multi-sector model, the
author demonstrates that relative price shocks can lead to a
reduction in aggregate employment by inducing workers of the
adversely affected sectors to remain unemployed while waiting
for the conditions to improve in their own sector rather than
moving to other positively affected sectors. Lilien (1982) extends
Hamiltons work further by showing that aggregate unemployment rises when relative price shocks becomes more variable.

Oil price and the economy

Oil price changes impact real economic activities on both the
supply and demand side (Jimenez-Rodriguez and Sanchez, 2005).
The increase in oil price is reected in a higher production cost
that exerts adverse effects on supply. The higher production cost
lowers the rate of return on investment, which affects investment
demand negatively. Besides, increased volatility in oil price may
affect investment by increasing uncertainty about future price
movements. Consumption demand is also inuenced by the
changes in oil price as it affects product price by changing
production cost. Moreover, a rise in oil prices deteriorates the
terms of trade for oil-importing countries (Dohner, 1981). As oil is
directly linked to the production process, it can have a signicant
impact on ination, employment, and output. An oil price shock
can increase ination by increasing the cost of production. It also
affects employment, as inationary pressure may lead to a fall in
demand and this, in turn, leads to a cut in production, which can
create unemployment (Loungani, 1986). The employmentoil
price relationship holds true for not only industrial production,
it is equally true for agricultural employment (Uri, 1995).
Previous research in this eld mainly investigates two different
aspects of the relationship between oil price and economic
activities: the impact of oil price shock and the impact of oil
price volatility. These two approaches differ in the way they

incorporate oil price in their model. While the rst approach takes
oil prices at their levels, the second approach employs different
volatility measures to capture the oil price uncertainty.
In response to two consecutive oil shocks in the early and late
1970s, a considerable number of studies have examined the
impact of shocks to oil price levels on economic activities.
Pioneering work by Hamilton in the early 1980s on the relationship between oil price and economic activities spurred researchers to look into the issue in greater detail. Hamilton (1983)
analyzes the behavior of oil price and the output of the US
economy over the period 19481981, and concludes that every US
recession between the end of World War II and 1973 (except the
19601961 recession) has been preceded, with a lag of around
three-fourths of a year, by a dramatic increase in the price of crude
petroleum. He further notes that post-1972 recessions in the US
were mainly caused by OPECs supply-oriented approach. In his
subsequent works, Hamilton (1988, 1996) strengthens his conviction that there is an important correlation between oil shocks and
recession. In a recent survey, Hamilton (2008) further stresses the
importance of oil price on macroeconomic activities.
Since then a number of researchers have supported and
extended Hamiltons results. Mork (1989) examines the relation
between oil price change and GNP growth in the US with an
extended data set (19481988) to capture the effect of both
upward and downward movements of oil price on output.
Hamilton considers only large upward price movements and nds
that there is a signicant negative correlation between oil price
and output. The major contribution of Morks study is that it nds
an asymmetric impact of oil prices on economic activities.
Burbridge and Harrison (1984), using somewhat different methods and OECD data, nd mixed but overall reinforcing evidence of
impact based on analysis of the US, Japan, Germany, the UK, and
Canada. They nd that oil price increases have a sizeable negative
impact on industrial production in the US and the UK, but the
responses in other countries are small. This study also nds
negative relationships between the oil price shock and macroeconomic indicators by using a comprehensive empirical model.
Gisser and Goodwin (1986) work on the US economy covering
the period 1961Q11982Q4. They employ a reduced-form
approach to assess the quantitative signicance of the impact of
crude oil prices on the US economy. They nd that crude oil prices
have a signicant impact on output, even exceeding the impacts of
monetary and scal policies. Mork and Olsen (1994) examine the
correlation between oil price and GDP in seven OECD countries
(the USA, Canada, Japan, West Germany, France, the UK, and
Norway) over the period of 1967Q31992Q4. They nd a
signicant negative correlation between oil price increases and
GDP in most of the countries studied. They estimate bi-variate
correlations as well as partial correlations within a reduced-form
macroeconomic model. The correlations between oil price
increases and GDP are found to be negative and signicant for
most of the countries, but positive for Norway, whose oilproducing sector is large relative to the economy as a whole.
The correlations with oil price decreases are mostly positive, but
signicant only for the USA and Canada.
Cunado and Gracia (2005) examine the impact of oil price
shocks on economic activities and ination in six Asian countries,
namely Japan, Singapore, South Korea, Malaysia, Thailand, and the
Philippines. Using quarterly data from 1975Q1 to 2000Q2 they
nd that oil prices have a signicant impact on both economic
growth and ination, and this result is more signicant when oil
price is measured in local currencies. They also nd evidence of
the asymmetric effect of oil prices on economic activities in their
study. Although the paper is a brilliant attempt to study Asian
economies, which are not given that much attention in previous
works in this eld, it could have considered other indicators of

ARTICLE IN PRESS
S. Raq et al. / Resources Policy 34 (2009) 121132

aggregate macroeconomic performance, such as unemployment,

interest rates, or exchange rates.
Cologni and Manera (2008) investigate the impact of oil prices
on ination and interest rates in a co-integrated vector-autoregreassive (VAR) framework for G-7 countries. Using quarterly
data for the period 1980Q12003Q4, they nd that, except for
Japan and the UK, oil prices signicantly affect ination, which is
transmitted to the real economy by increasing interest rates.
Impulse response function analysis suggests the existence of an
instantaneous, temporary effect of oil price change on ination.
Chen and Chen (2007) examine whether there is any long-run
equilibrium relation between real oil prices and real exchange
rates. Using the monthly panel data of G7 countries over the
period 1972M12005M10 they nd a co-integrating relationship
between real oil prices and real exchange rates. This paper is
different from other studies in this eld (for example Zhou, 1995;
Chaudhuri and Daniel, 1998; Amano and Norden, 1998) in that it
assesses the role of real oil prices in predicting real exchange rates
over long horizons. Panel predictive regression estimates suggest
that real oil prices have signicant forecasting power for real
exchange rates.
Lardic and Mignon (2006) study the long-run equilibrium
relationship between oil prices and GDP in 12 European countries
using quarterly data spanning from 1970Q1 to 2003Q4. This study
nds that the relationship between oil price and economic
activities is asymmetric; that is, rising oil prices retard aggregate
economic activity more than falling oil prices stimulate it. Their
results show that, while the standard co-integration between the
variables is rejected, there is asymmetric co-integration between
oil prices and GDP in most of the participating European
countries. This paper makes a signicant contribution to the
literature on the asymmetric impact of oil price on GDP and it
differs from other studies, such as Mory (1993), in that it employs
an asymmetric co-integration procedure to capture this asymmetric relation.
In contrast to the above studies, which analyze the impact of
oil price shocks, papers investigating the impact of oil price
volatility on the economies are very limited and have their origin
in the increase of oil price volatility from mid-1980s. Lee and Ni
(1995) nd that oil price changes have a substantial impact on
economic activities (notably GNP and unemployment) only
when prices are relatively stable, rather than highly volatile or
erratic. This indicates a weaker empirical relationship between
oil prices and economic activities in the US since the remarkable
increase in oil price volatility. In this study the authors utilize
a generalized auto-regressive conditional heteroskedasticity
(GARCH) model to construct the conditional variation in oil
price changes.
Ferderer (1996) analyzes US data spanning from 1970M1 to
1990M12 to see whether the relation between oil price volatility
and macroeconomic performance is signicant. In this study, the
oil price volatility is measured by simple standard deviation. Oil
price volatility is found to contain signicant independent
information that helps forecast industrial production growth.
The vector auto-regressive (VAR) framework is utilized to analyze
the impact of both oil price shock and oil price volatility on scal
and monetary policy variables like industrial production growth,
federal funds rate and, non-borrowed reserves. Evidence is found
that oil market disruptions have impact in the economy through
both sectoral shocks and uncertainty channels. Further, monetary
tightening in response to oil price increase partially explains the
outputoil price correlation and the Federal Reserve reacts to the
oil price increase as much as it responds to the oil price decreases.
The paper concludes that sectoral shocks and uncertainty
channels offer a partial solution to the asymmetry puzzle between
oil price and output.

123

Guo and Kliesen (2005) look into the impact of oil price
volatility on the US economy. Using the measure of realized
volatility constructed from daily crude oil future prices traded on
the NYMEX, they nd that, over the period 19842004, oil price
volatility has a signicant effect on various key US macroeconomic indicators, such as xed investment, consumption, employment, and the unemployment rate. The ndings suggest that
changes in oil prices are less signicant than the uncertainty
about future prices. They also nd that standard macroeconomic
variables do not forecast realized oil price volatility, which
indicates that the variance of future oil prices reect stochastic
disturbances. They conclude that this is mainly driven by
exogenous events, like signicant terrorist attacks and military
conicts in the Middle East.
Some observations can be made from the above discussion.
Firstly, oil price shocks have important impact on aggregate
macroeconomic indicators, such as GDP, interest rates, investment, ination, unemployment and exchange rates. Secondly, the
impact of oil price changes on the economy is asymmetric; that is,
the negative impact of oil price increases is larger than the
positive impact of oil price decreases. There have been few
academic endeavors made to analyze the impact of oil price
volatility per se on economic activities and, more importantly,
such studies are conducted almost exclusively in the context of
developed countries, especially the USA.
Studies analyzing the impact of oil price volatility are
now needed for developing countries. In the face of global
competition, maintaining economic stability has become the
crucial task for policy makers in these countries. Moreover,
the economies of developing countries are fundamentally
different from those of developed countries. Developing countries
are generally characterized by relatively high unemployment,
less-developed nancial markets, weak infrastructure, etc.
Moreover, the dependence of developing countries on oil is
forecasted to be increasing over the next couple of decades. Thus,
it is of utmost importance to identify what impact oil price
volatility has on the economic activities of these countries. As no
known studies have examined this aspect in the context of
developing countries, this remains an untapped area of serious
research. This study intends to make some contribution to an
understanding of the issue of oil price volatility and its impact
on the real economic activities of one of these developing
countries, Thailand.

Data sources and analytical framework

Data
This paper uses quarterly data from 1993Q1 to 2006Q4 for
Thailand. The rationale behind selecting this period is the
availability of data. Since the volatility of oil price is calculated
on a quarterly basis, the empirical analysis of this study is based
on quarterly data. In Thailand, there is no data of all the relevant
macroeconomic indicators prior to 1993. Thus this study has to
conne its empirical analysis within this range of time. In
calculating the quarterly volatility measure, the daily crude oil
prices of Arab Gulf Dubai FOB $US/BBL are considered and
transformed into local prices by adjusting the world oil prices
with the respective foreign exchange rates. Time-series data on
some macroeconomic variables, growth rate of gross domestic
product (GGDP), investment (INV), interest rate (IR), ination
(INF), are obtained from the International Financial Statistics (IFS)
compact disk (CD) of May 2007 and data on unemployment rates
(UR), trade balance (TB), and budget decit (BD) are collected
from the Bank of Thailand. Investment is calculated by the gross

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S. Raq et al. / Resources Policy 34 (2009) 121132

xed capital formation as a percentage of GDP. Both the gross

xed capital formation and real GDP data are on national currency
in millions. The budget decit is also taken as a percentage of GPD
to measure its share of overall economic activity to capture the
impact of subsidization through the oil fund that is operated by
the Energy Fund Administration Institute (EFAI) of Thailand, while
trade balance is computed by subtracting net exports from net
imports and also taken as a percentage of GDP. The interest rate
data represents 3-month Treasury bill rate. In the case of
unemployment rates, quarterly observations from 1993Q1 to
2000Q4 are obtained by using the Lisman Sandee (1964) method.
The measure applied here in constructing quarterly oil price
variance is the measure of realized volatility, which is elaborated
below.

Methodology
This article employs the Granger causality test to examine the
causal relationship between oil price volatility and other leading
economic indicators of Thailand. Causality in Grangers (1969)
sense is inferred when values of a variable, say, Xt has explanatory
power in a regression of Yt on lagged values of Yt and Xt. If lagged
values of Xt have no explanatory power for any of the other
variables in the system, then Yt is viewed as weakly exogenous to
the system.
Vector auto-regression (VAR) of the following form is considered for this purpose:
Y t a0

n
X

bi Y ti

n
X

i1

Realized oil price variance

Based on the nature of data under consideration, various
volatility measures, both parametric and non-parametric (such as
historical volatility (HS), stochastic volatility (SV), implied
volatility (IV), realized volatility (RV), and conditional volatility
(CV)) have been suggested in the literature. The parametric
models can reveal well-documented time varying and clustering
features of conditional and implied volatility. However, the
validity of the estimate relies a great deal on the model
specications along with the particular distributional assumptions and, in the instances of implied volatility, another assumption regarding the market price of volatility risk has to be met
(Andersen et al., 2001a). This stylized fact is also unveiled in a
seminal article by Andersen et al. (2001b), where they argue that
the existence of multiple competing parametric models points out
the problem of misspecication. Moreover, the conditional
volatility (CV) and stochastic volatility (SV) models are hard to
adopt in a multivariate framework for most of the practical
applications.
An alternative measure of volatility, termed as realized
volatility, is introduced by Andersen et al. (2001a) and Andersen
et al. (2001b, 2003). Furthermore, the theory of quadratic
variation suggests that, under appropriate conditions, realized
volatility is an unbiased and highly efcient estimator of volatility
of returns, as shown in Andersen et al. (2001b, 2003), and
Barndorff-Nielsen and Shephard (2002, 2001a). In addition to that,
by treating volatility as observed rather than latent, the approach
facilitates modeling and forecasting using simple methods based
on observable data (Andersen et al., 2003).
According to Andersen et al. (2004), realized volatility is the
summation of intra-period squared returns

RV t h 

1=h
X

r h2
t1ih

i1

where the h-period return (in this study this is daily oil price
return) is given by rh
t logSt  logSth and 1/h is a positive
integer. In accordance with the theory of quadratic variation, the
realized volatility RVt(h) converges uniformly in probability to IVt
as h-0, as such allowing for ever more accurate non-parametric
measurements of integrated volatility. Furthermore, papers of
Zhang et al. (2005) and At-Sahalia et al. (2005) state that the
realized variance is a consistent and asymptotically normal
estimator once suitable scaling is performed. The estimated
realized volatility and all macro-variables used in this study are
graphically represented below. These gures reveal two important
facts; (i) crude oil price has been highly volatile in recent years,
particularly in the second half of 1990s and (ii) all the data series
portray spikes around the period of the Asian Financial Crisis of
19971998.

X t f0

n
X
i1

li X ti mt

(1)

i1

ji Y ti

n
X

Zi X ti nt

(2)

i1

where n is the number of the optimum lag length. Optimum lag

lengths are determined empirically by the Schwarz Information
Criterion (SIC). For each equation in the above VAR, Wald w2
statistics are used to test the joint signicance of each of the other
lagged endogenous variables in equation. In addition, the Wald w2
statistics tell us whether an endogenous variable can be treated as
exogenous. Moreover, roots of the characteristics polynomial test
is undertaken to conrm whether the VAR system satises the
stability condition (Fig. 1).
The conventional Granger causality test based on standard VAR
is conditional on the assumption of stationarity of the variables
constituting the VAR. If the time series are non-stationary, the
stability condition of VAR is not met, implying that the w2 (Wald)
test statistic for Granger causality is invalid. In that case, the cointegration and vector error correction model (VECM) are
recommended to investigate the relationship between nonstationary variables. Therefore, it is imperative to ensure rst
that the underlying data are stationary or I(0). Since there are a
number of tests developed in the time-series econometrics to test
the presence of unit roots, this paper uses two most popular
methods: the Augmented DickeyFuller (ADF) test and the
Philips-Perron (PP) test. However, in many empirical literature
it has been found that both the ADF and PP unit root tests fail to
reject null hypothesis of a unit root for many time series.
Therefore, the study also employs the KwiatkowaskiPhilips
SchmidtShin (KPSS) unit root test to complement the standard
unit root testing process since KPSS can make distinction between
the series that appear to be stationary, those that appear to be
non-stationary having a unit root at their levels, and those that
are not sufciently informative to be certain whether they
are either of them. Hence, the combining use of these tests
makes it possible to test for both the null hypothesis of nonstationarity and stationarity, respectively. This process of joint use
of unit root (ADF and PP) and stationarity (KPSS) tests is known as
conrmatory data analysis (Brooks, 2002).
However, these standard tests may not be appropriate when
the series contain a structural break. To compensate for such a
problem, Perron (1989) proposes a procedure that allows an
exogenous structural break at time Tb, that is if the time of break is
known as a priori. Afterward, Zivot and Andrews (1992) criticize
this test for treating the time of the break as exogenous or a priori.
Zivot and Andrews (1992), and latter Perron (1997), further
develop a procedure that allows endogenous break points in the
series under consideration. Following this, a large number of
empirical studies have considered the probable existence of
structural break(s) in the series under consideration, such as

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S. Raq et al. / Resources Policy 34 (2009) 121132

Realized Volatility (RV)

125

GDP Growth (GGDP)

0.14

10.0

0.12

7.5

Investment (INV)
1.8
1.6

5.0

0.10

1.4

2.5
0.08

1.2

0.0
0.06
-2.5
0.04

1.0

-5.0

0.02

0.8

-7.5
-10.0

0.00
1994

1996

1998

2000

2002

2004

2006

0.6
1994

1996

Unemployment Rate (UR)

1998

2000

2002

2004

1994

2006

1996

Inflation (INF)

2002

2004

2006

14

2.5
4

2000

Interest Rate (IR)

3.0

1998

12

2.0
10

1.5

1.0
2

0.5

0.0

-0.5
0

-1.0
1994

1996

1998

2000

2002

2004

1994

2006

1996

1998

2000

2002

2004

2006

2004

2006

1994

1996

1998

2000

2002

2004

2006

Budget Deficit (BD)

Trade Balance (TB)

15

10

5
0
0
-4
-5
-8

-10
-15

-12
1994

1996

1998

2000

2002

2004

2006

1994

1996

1998

2000

2002

Fig. 1. Variables used in this study.

Salman and Shukur (2004), Hacker and Hatemi-J (2005), and

Salim and Bloch (2007), among others.
Breaks in time-series data due to a shock occur either
instantaneously or gradually. Instantaneous change to the new
trend function is modeled in the Additive Outlier (AO) model
and changes that take place gradually are modeled in the
Innovational Outlier (IO) model. In the present context it is
reasonable to follow the IO model, because policy reforms at
macro level do not cause the target variable to respond
instantaneously to the policy actions. Also the date of break is
not known a priori. Therefore, an IO model, following Perron
(1997), is used to test the stationary process with a structural
break both in slope and intercept
yt m bt yDU t gDT t dDT b t ayt1

k
X

ai Dyti et

(3)

where DUt is an indicator dummy variable for a mean shift

occurring at each possible breakpoint (Tb) while DT t is a

corresponding trend shift variable; formally

(
DU t

1;
0;

(
if t4T b
t  Tb
DT t
otherwise
0;
(
1; if t T b 1
DT b
0; otherwise

if t4T b
otherwise

and yt is any general ARMA process and et a white noise error

term.
The null hypothesis that a given series is a realization of a
time-series process characterized by the presence of a unit root is
rejected when the absolute value of the t-statistics for testing
a 1 in (3), denoted by ta, is greater than the critical values. The
breakpoint is estimated by the OLS for t 2, y, T1, thus T2
regressions are run, and the breakpoint is determined by the
minimum t statistic on the coefcient of the auto-regressive
variable (ta). The truncation lag parameter k is determined using
the data-dependent method proposed by Perron (1997). The
optimum k(k*)is selected such that the coefcient on the last lag
in an auto-regression of order k* is signicant and that the last

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S. Raq et al. / Resources Policy 34 (2009) 121132

Table 1
Perron innovational outlier model with change in both intercept and slope
Series

Tb

k1

t b^

t y^

t g^

t d^

a^

ta

Inference

RV
GGDP
INV
UR
INF
IR
TB
BD
DBD

19
20
17
19
21
22
17
20
18

1997Q4
1998Q1
1997Q2
1997Q4
1998Q2
1998Q3
1997Q2
1998Q1
1997Q3

0
5
0
1
1
0
8
7
1

1.45
4.98
0.79
1.59
2.38
4.48
0.93
2.69
1.85

3.26
3.55
6.80
6.35
3.14
7.56
3.67
4.07
1.68

2.43
4.73
2.02
1.23
0.77
1.89
1.51
3.29
2.06

6.14
5.46
4.96
2.56
1.74
6.76
3.01
1.92
1.42

0.183
0.48
0.54
0.09
0.18
0.58
0.01
1.06
1.07

7.56
5.39
6.65
7.78
6.90
8.79
6.031
4.35
14.55

S
S
S
S
S
S
S
NS
S

Note: 1%, 5%, and 10% critical values are 6.32, 5.59, and 5.29, respectively (Perron, 1997). The optimal lag length is determined by AIC with kmax 8. S and NS stand for
stationary and non-stationary, respectively.

coefcient in an auto-regression of order greater than k* is

insignicant, up to a maximum order kmax (Perron, 1997).
Following Lumsdaine and Papell (1997), and Pahlavani (2005), it
is assumed that kmax 8.
Impulse response functions trace the responsiveness of the
dependent variable in the VAR system to a unit shock in error
terms. For each variable from each equation, a unit shock is
applied to the error term and the effects upon the VAR over time
are noted. If there are g variables in the VAR system, then a total of
g2 impulse responses could be generated. However, in accordance
with the objective of this paper, the responses generated by the
innovation in the realized volatility of oil prices are examined.
One limitation with the Granger causality test is that the
results are valid within the sample, which is useful in detecting
exogeneity or endogeneity of the dependent variable in the
sample period, but is unable to deduce the degree of exogeneity of
the variables beyond the sample period. To examine this issue the
variance decomposition technique is employed. Unlike impulse
responses, a shock to the ith variable not only directly affects the
ith variable, but it also transmitted to all of the other endogenous
variables through the dynamic (lag) structure of the VAR. Variance
decomposition separates the variation in an endogenous variable
into the component shocks to the VAR. Thus, variance decomposition provides information about the relative importance of
each random innovation affecting the variables in the VAR. Sims
(1980) notes that, if a variable is truly exogenous with respect to
other variables in the system, own innovations will explain all of
the variables forecast error variance.
From empirical point of view, this study differs from the
previous ones in several ways. One, it applies a comparatively new
measure of oil price volatility namely the realized oil price
variance. Two, it performs a battery of diagnostic tests for
identifying unit roots within different time series. Some of these
tests have not previously been employed in similar studies;
NgPerron, DF-GLS and Perron (1997) unit root tests for example.
This study remains one of the very few studies in this eld as it
employs impulse responses and variance decompositions tests
based on the results of structural break test.

Analysis of ndings
Time-series properties of data
The tests for unit root are applied to both the original series
and to the rst differences.1 Findings of ADF and PP tests differ in
their results, while KPSS reveals that all the variables are
stationary at their levels. However, since these conventional unit
1

Results not reported, will be provided upon request.

root tests may suffer from low power the study further employs
two other tests, namely NgPerron and DickeyFuller GLS (ERS)
tests. The results for these tests also conrm that most of the
variables are stationary at their levels. Nevertheless, the signicant part of all these tests is that they all indicate that realized
volatility (RV) is I (0).
However, as mentioned earlier, the traditional unit root test
cannot be relied upon if the underlying series contains structural
break(s). This study uses Perrons (1997) unit root test, which
allows for a structural break and the test results are summarized
in Table 1. The test results provide a very interesting fact that for
all the variables the dates for structural break are around the
Asian Financial Crisis of 19971998. Thus, the study employs
multiple VAR systems: rstly, a VAR analysis for the whole sample
and, secondly, a VAR analysis for the data period after a date
beyond the structural breaks, i.e. from 1999Q1 to 2006Q4.
The Perron (1997) test results provide evidence of the
existence of unit root in the budget decit when breaks are
allowed. However, when the series is differenced once, the
variable becomes stationary. Thus, it can be concluded that the
underlying data is non-stationary at level but stationary at its rst
difference. However, the volatility of oil prices is stationary at
level. Since there is one non-stationary variable at level the error
correction model cannot be implemented in this regard. Hence,
the impact analysis needs to be performed in the VAR system
where the only non-stationary variable i.e. budget decit, is rst
differenced before putting it into the model. Now the concern is
whether an unrestricted VAR or a restricted one (to be more
specic VARX) is appropriate for this particular study.

Model selection
A number of tests are performed to identify the appropriate
model for investigating the relationship among the variables under
consideration. In selecting the correct form of the model, the rst
step is to perform the VAR Granger causality/block exogeneity
Wald Test. This test investigates whether an endogenous variable
can be treated as exogenous. The result of the exogeniety test for
realized volatility is presented in Table 2. The statistic in the last
row (all) is the w2 statistic for joint signicance of all other lagged
endogenous variables in the equation, and the table reveals that, in
respect of all other variables, realized volatility of oil prices can be
treated as an endogenous variable in the model.
Moreover, the same test can be employed to identify whether
volatility in oil prices Granger causes other variables in the
system. The results of the exogeneity test for the other variables
are given in Table 3. The VAR Granger causality test indicates
that GDP growth, investment, unemployment, and ination are
Granger caused by oil price volatility.

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S. Raq et al. / Resources Policy 34 (2009) 121132

Lag length selection, stability test, and VAR estimation

According to the SIC, the lag length of VAR is identied to be 1.
Lag exclusion tests are also carried out for lag 1. The w2 (Wald)

Table 2
Test of endogeniety for RV
Excluded variable

w2

D.F.

Probability

GGDP
INV
UR
INF
IR
TB
DBD
All

0.000340
2.216266
2.186352
1.227465
3.698375
3.712326
0.006277
20.51950

1
1
1
1
1
1
1

0.9853
0.0136
0.0139
0.2679
0.0545
0.0540
0.9368
0.0046

Note: Here RV is dependent variable.

Table 3
Granger causality test
Dependent variable

w2

D.F.

Probability

GGDP
INV
UR
INF
IR
TB
DBD

9.365603
4.831090
15.60052
3.700295
0.455655
0.019409
0.384085

1
1
1
1
1
1
1

0.0022
0.0280
0.0001
0.0544
0.4997
0.8892
0.5354

127

statistics for the signicance of all the endogenous variables at lag

1 for each equation separately and jointly reveals that the w2 test
statistics for lag exclusion is signicant, e.g. according to the test
the lag length of 1 appears to be appropriate for the VAR system
under consideration.
The inverse roots of the characteristics auto-regressive (AR)
polynomial indicates that the estimated VAR is stable (stationary)
if all roots have a modulus less than one and lie inside the unit
circle. Since no root lies outside the unit circle and all the modulus
are less than one, the VAR model in this regard is stable. Thus,
results from all the tests demonstrate that a VAR (1) is appropriate
for investigating the relationship between volatility of oil prices
and other concerned macroeconomic indicators.
The result of the VAR (1) model is presented in Table 4. The
coefcients and respective t-statistics of the variables show that
the realized volatility of oil prices has a signicant negative
impact on GGDP and unemployment. Thus, it shows that, in
Thailand, oil price volatility negatively affects to GDP growth and
it also gives rise to unemployment. Now a critical analysis
concerning the sign of relationships and how long it would take
for the impact of the volatility to work through the system is
warranted.
Source of variability
The Granger causality test suggests which of the variables in
the models have statistically signicant impacts on the future
values of each of the variables in the system (Brooks, 2002).
However, the result will not, by construction, be able to explain
the sign of the relationship or how long these impacts will remain
effective in the future. Variance decomposition and impulse

Note: Here RV is excluded from the equations for other variables.

Table 4
VAR (1) output for Thailand
RV

GGDP

INV

UR

INF

IR

TB

100.7969
(32.9366)

0.340719
(0.80765)

13.82964
(3.50140)

12.41577
(6.45440)

4.568806
(6.76838)

3.974950
(28.5316)

DBD

RV(1)

0.016039
(0.15666)

GGDP(1)

1.260000
(0.00068)

0.233898
(0.14325)

0.002400
(0.00351)

0.046667
(0.01523)

0.013307
(0.02807)

0.051741
(0.02944)

0.273436
(0.12409)

0.296684
(0.15442)

INV(1)

0.032923
(0.02212)

8.112659
(4.64947)

0.764016
(0.11401)

0.840708
(0.49427)

0.517018
(0.91113)

8.080000
(0.95545)

5.424502
(4.02764)

7.892113
(5.01213)

UR(1)

0.006491
(0.00439)

1.470879
(0.92298)

0.015807
(0.02263)

0.488116
(0.09812)

0.175170
(0.18087)

0.274910
(0.18967)

0.585587
(0.79953)

1.483793
(0.99497)

INF(1)

0.004181
(0.00377)

0.147161
(0.79335)

0.029002
(0.01945)

0.151961
(0.08434)

0.187564
(0.15547)

0.441827
(0.16303)

1.362374
(0.68725)

2.152068
(0.85523)

IR(1)

0.001620
(0.00084)

0.090718
(0.17710)

0.004775
(0.00434)

0.024487
(0.01883)

0.015629
(0.03471)

0.850663
(0.03639)

0.054799
(0.15342)

0.237514
(0.19092)

TB(1)

0.001501
(0.00078)

0.034675
(0.16377)

0.008827
(0.00402)

0.015312
(0.01741)

0.042119
(0.03209)

0.042678
(0.03365)

0.785600
(0.14187)

0.075512
(0.17654)

DBD(1)

5.540000
(0.00070)

0.555279
(0.14709)

0.004277
(0.00361)

0.021044
(0.01564)

0.037688
(0.02883)

0.064336
(0.03023)

0.046624
(0.12742)

0.051830
(0.15857)

0.071668
(0.03399)

18.15349
(7.14526)

0.404566
(0.17521)

1.686756
(0.75959)

0.074393
(1.40021)

1.014942
(1.46833)

7.802119
(6.18963)

13.83383
(7.70260)

Notes: Standard errors are reported in ( ).

22.00455
(35.5058)

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128

S. Raq et al. / Resources Policy 34 (2009) 121132

response functions give this information. In relation to these tests,

it is often observed that the results of these tests are sensitive to
the ordering of the variables. However, with respect to the study
in hand no major difference is seen in changing the order of
presentation of the concerned variables. The ordering used for
both of the tests, i.e. impulse response functions and variance
decomposition is: realized volatility, GDP growth, investment,
unemployment rate, ination, interest rate, trade balance, and
budget decit.
Impulse response functions
The orthogonalized impulse response functions trace out
responsiveness of the dependent variables in the VAR to shocks
to each of the variables. For each variable from each equation
separately, a unit shock is applied to the error, and the effects
upon the VAR system over time are noted. Since the VAR system
has eight variables, a total of 64 impulses could be generated.
Since the primary aim of the paper is to examine the impact of oil
price volatility on the other seven economic indicators, the paper
only traces out the responsiveness of the dependent macroeconomic variables in the VAR to shock to realized volatility. The

Response of RV to RV

results of the impulse responses of the variables are presented

in Fig. 2.
According to the above gures, the impulse responses show
that, in most of the cases, realized volatility has its impact on the
shorter time horizon and the highest impact would happen to
investment and unemployment rate.
Variance decomposition
Variance decomposition gives the proportion of the movements in the dependent variables that are due to their own
shocks, versus shocks to the other variables. The results of
variance decomposition over a period of a 40-quarter time
horizon for different variables are presented in Table 5. As the
table below suggests, the variance decomposition results are
consistent with the ndings of impulse responses. The results of
the test reveal that oil price volatility explains a fair portion of
innovations in investment and unemployment rate over a longer
time period horizon.
However, since the Perron (1997) test for structural break
indicates the existence of structural break for all the variables in
the system, the relationship is further investigated in the vector

Response of GGDP to RV

0.020

0.015

0.010

0.005

-1

0.000

-2

Response of INV to RV
0.04

0.00

-0.04

-0.08

-3

-0.005
5

10

15

20

25

30

35

40

-0.12
5

Response of UR to RV

10

15

20

25

30

35

40

Response of INF to RV

10

15

20

25

30

35

40

35

40

Response of IR to RV

0.5

0.4

0.8

0.4

0.3

0.3

0.2

0.2

0.1

0.0

0.1

0.0

-0.4

0.0

-0.1

-0.1

-0.2

0.4

-0.8
-0.2

-0.3
5

10

15

20

25

30

35

40

-1.2
5

Response of TB to RV

10

15

20

25

30

35

40

10

15

Response of DBD to RV

1.5
1.0

2
0.5
1

0.0
-0.5

0
-1.0
-1

-1.5
5

10

15

20

25

30

35

40

10

15

20

25

30

35

40

Fig. 2. Responses from RV, GGDP, INVT, UR, INF, IR, TB and DBD to Cholesky One S.D. Innovations+S.E in RV.

20

25

30

ARTICLE IN PRESS
S. Raq et al. / Resources Policy 34 (2009) 121132

129

Table 5
Bivariate variance decomposition of RV with GGDP, INV, UR, INF, IR, DTB, and DBD
Period

S. E.

RV

GGDP

S.E.

RV

INV

S.E.

RV

UR

S.E.

RV

INF

1
10
20
30
40

3.428
4.583
4.602
4.608
4.608

0.318
15.131
15.165
15.183
15.182

99.682
64.230
63.715
63.606
63.594

0.084
0.266
0.281
0.289
0.290

8.269
23.222
22.514
22.389
22.387

91.512
34.498
31.919
31.500
31.289

0.364
0.941
0.987
1.004
1.008

3.472
26.196
25.559
25.335
25.313

85.474
17.374
15.811
15.286
15.157

0.672
0.882
0.922
0.925
0.927

1.887
11.440
12.414
12.411
12.463

74.742
49.466
47.053
46.76536
46.618

Period

S.E.

RV

IR

S.E.

RV

TB

S.E.

RV

DBD

1
10
20
30
40

0.704
2.500
3.491
3.577
3.603

1.619
8.123
14.692
14.943
14.992

86.778
30.293
16.085
15.778
15.624

2.969
6.611
6.766
6.848
6.862

5.178
15.597
15.621
15.731
15.758

82.905
46.778
45.314
45.038
44.938

3.696
4.427
4.428
4.429
4.429

0.917
3.152
3.159
3.162
3.163

46.519
34.972
34.954
34.947
34.945

Note: The decompositions are reported for one-, 10-, 20-, 30 and 40-quarter horizons. Ordering used here is RV, GGDP, INVT, UR, INF, IR, TB, and DBD. However, changing the
order did not alter the results to any substantial degree. This is because the Choleski decomposition is used in order to orthogonalize the innovations across equations.

Table 6
VAR granger causality/block exogeneity wald tests for RV
Excluded variable

w2

D.F.

Probability

GGDP
INV
UR
INF
IR
TB
BD
All

7.878130
0.544623
9.290095
1.514428
0.169897
1.363557
0.256577
20.51950

2
2
2
2
2
2
2

0.0195
0.7616
0.0096
0.4690
0.9186
0.5057
0.8796
0.0195

Note: Here RV is dependent variable.

Table 7
VAR granger causality/block exogeneity Wald tests for other variables
Dependent variable

w2

D.F.

Probability

GGDP
INV
UR
INF
IR
TB
BD

3.702518
5.038456
0.357929
2.367984
1.547978
2.659912
3.989715

2
2
2
2
2
2
2

0.1570
0.0805
0.8361
0.3061
0.4612
0.2645
0.1360

Banking Crisis of Asia. Moreover, for the data period from 1999Q1
to 2006Q4, the SIC indicates that the appropriate lag length of
VAR is 2.
The VAR Granger causality/block exogeneity Wald Test table
indicates that, in respect of all other variables, realized volatility of
oil prices can be treated as an endogenous variable in the model as
is the case for the longer period (Table 6).
The test for Granger causality for all the other variables when
RV is excluded indicates that only investment is Granger caused
by oil price volatility when the data set spans from 1999Q1 to
2006Q4 (Table 7).
The results of the VAR (2) output for the data period
1999Q12006Q4 is presented in Appendix Table A1, and the
impulse response functions are given in Fig. 3. The impulse
responses for the period after the banking crisis (1999Q1
2006Q4) show that, in most of the cases, realized volatility has
its impact on the shorter time horizon and the highest impact
would happen to investment, interest rate, and budget decit.
The results of variance decomposition over a period of a 40quarter time horizon for different variables for the period of
1999Q12006Q4 are presented in Table 8. The results of variance
decomposition show that, oil price volatility explains a fair
portion of innovations in GDP growth, investment, and budget
decit over a longer time period horizon.

Note: Here RV is excluded from the equations for other variables.

Conclusions and policy implications

auto-regressive (VAR) framework taking the data set for all the
concerned variables spanning from 1999Q1 (just after the last
quarter of structural break, i.e. 1998Q3) to 2006Q4. The test
of time-series properties and model estimation results are as
follows.

This paper empirically examines the impact of oil price

volatility on key macroeconomic variables in Thailand by
using vector auto-regression systems. The empirical results
from the Granger causality test show that there is unidirectional
causality running from oil price volatility to investment,
unemployment rate, interest rate and trade balance for the
whole data period. The impulse responses show that, in
most of the cases, realized volatility has an impact on the shorter
time horizon, with the highest impact on investment and
unemployment rate. Like Cunado and Gracia (2005) and Guo
and Kliesen (2005), this study nds that the nature of the
relationship between oil price volatility and economic indicators is a short-term one. Results from the impulse response
functions and variance decomposition conrm that a fair
portion of uctuations in unemployment rate and investment is
explained by oil price volatility. All these ndings support
the popular notion of the impact of uncertainty on delaying

Model estimation after 1999

As budget decit series is found to be a I (1) process for the
whole period from1993Q1 to 2006Q4, the series from 1999Q1 to
2006Q4 is further investigated by both tests of unit root and test
for structural beak. The tests indicate that the budget decit series
as a stationary process at the level after the date of structural
break. Thus, a VAR for all the variables in their levels is required to
see the actual impact of realized volatility on the macroeconomic
activities of Thailand in the recent times, more precisely after the

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130

S. Raq et al. / Resources Policy 34 (2009) 121132

Response of RV to RV

Response of GGDP to RV

0.02

Response of INV to RV

0.6

0.4

0.01

0.2
0
0.0

0.00

-1
-0.2
-2

-0.01

-0.4

-3
5

10

15

20

25

30

35

40

-0.6
5

Response of UR to RV

10

15

20

25

30

35

40

Response of INF to RV

10

15

20

25

30

35

40

35

40

Response of IR to RV

0.8

2
0.12

0.4

0.08

0.04

0.00
0.0

-0.4

-0.04

-1

-0.08

-2

-0.12
-3
5

10

15

20

25

30

35

40

Response of TB to RV

10

15

20

25

30

35

40

35

40

10

15

20

25

30

Response of BD to RV

0.6
0.4

1
0.2
0

0.0
-0.2

-1
-0.4
-2

-0.6
5

10

15

20

25

30

35

40

10

15

20

25

30

Fig. 3. Responses from RV, GGDP, INVT, UR, INF, IR, TB and DBD to Cholesky One S.D. Innovations+S.E in RV from 1999Q1 to 2006Q4.

Table 8
Bivariate variance decomposition of RV with DGGDP, INV, UR, INF, IR, DTB, and DBD
Period

S.E.

RV

GGDP

S.E.

RV

INV

S.E.

1
10
20
30
40

1.798
4.078
5.073
5.589
5.913

3.827
17.765
16.708
16.211
15.970

96.173
66.125
67.734
68.545
68.095

0.456
0.983
1.051
1.104
1.1545

14.510
6.0234
6.2014
6.3788
6.3248

84.647
21.783
19.617
18.129
17.079

0.206
1.6284
1.801
1.827
1.856

Period

S.E.

RV

IR

S.E.

RV

TB

S.E.

RV

BD

1
10
20
30
40

2.772
4.543
5.207
5.544
5.819

75.221
33.689
27.819
25.529
23.801

1.746
3.505
4.315
5.150
6.049

35.649
22.630
18.211
18.079
17.872

0.409
0.844
1.048
1.303
1.624

7.444
17.375
14.177
10.448
8.287

46.594
14.158
9.371
6.137
4.027

2.831
9.889
8.459
8.254
7.958

0.000
5.424
6.427
6.600
5.954

RV
0.836
1.024
0.889
0.971
0.991

UR

S.E.

RV

INF

65.749
27.713
27.126
27.006
28.437

0.0596
0.17089
0.262
0.3684
0.495

5.192
6.412
4.620
4.127
3.842

51.007
48.013
50.372
51.861
52.849

Note: The decompositions are reported for one-, 10-, 20-, 30- and 40-quarter horizons. Ordering used here is RV, GGDP, INVT, UR, INF, IR, TB, and BD. However, changing the
order did not alter the results to any substantial degree. This is because the Choleski decomposition is used in order to orthogonalize the innovations across equations.

and reducing investment, which consequently transmits to

unemployment through sectoral restructuring and resource
reallocation.
It can be inferred from the VAR system for the full period
that oil price volatility has signicant impact on growth, employ-

ment and investment. However, since Perron (1997) test

identies structural breaks in all the variables around
19971998 (during the Asian Financial Crisis), the study decomposes the whole time period into two and employs VAR
analysis for the period of 1999Q12006Q4. The results after the

ARTICLE IN PRESS
S. Raq et al. / Resources Policy 34 (2009) 121132

nancial crisis show that adverse effect of oil price volatility

has been mitigated to some extent. During this period budget
decit has been affected most, which may be due to the change
in exchange rate regime that put higher pressure on oil fund.
It seems that oil subsidization plays signicant role in improving
economic performance by lessening the adverse effect of
oil price volatility on macroeconomic indicators. The policy
implication of this result would be that the government
should keep pursuing its policy to stabilize domestic oil

131

price through subsidization and thus help boost investment,

employment, and growth.

Appendix
For VAR (1) output for
1999Q12006Q4 see Table A1.

Thailand

for

the

period

of

Table A1
RV

GGDP

RV(1)

0.176607
(0.26109)

RV(2)

0.570845
(0.35744)

4.517563
(46.1928)

GGDP(1)

0.002041
(0.00177)

0.232980
(0.22849)

GGDP(2)

0.001874
(0.00148)

INV(1)

INV

INF

IR

TB

DBD

1.748280
(3.86086)

0.607179
(1.11819)

39.37850
(52.0271)

43.66341
(32.7704)

14.38598
(7.69104)

2.452231
(5.28554)

2.025462
(1.53080)

59.85878
(71.2254)

31.12911
(44.8629)

3.831760
(10.5291)

0.125123
(0.05794)

0.049746
(0.02614)

0.004445
(0.00757)

0.113808
(0.35232)

0.018680
(0.22191)

0.077189
(0.05208)

0.634877
(0.19083)

0.065793
(0.04839)

0.059071
(0.02184)

0.011536
(0.00632)

0.037956
(0.29424)

0.514596
(0.18534)

0.026430
(0.04350)

0.004188
(0.00828)

0.199843
(1.07019)

0.300970
(0.27137)

0.357581
(0.12246)

0.005581
(0.03547)

0.304139
(1.65015)

1.575878
(1.03938)

0.129416
(0.24394)

INV(2)

0.005463
(0.00876)

1.509865
(1.13189)

0.550350
(0.28701)

0.165882
(0.12952)

0.014027
(0.03751)

0.468762
(1.74528)

1.128605
(1.09931)

0.062441
(0.25800)

UR(1)

0.012968
(0.01315)

1.236178
(1.69912)

0.361000
(0.43084)

0.781499
(0.19442)

0.015431
(0.05631)

0.558082
(2.61990)

0.140399
(1.65020)

0.081181
(0.38729)

UR(2)

0.013883
(0.01146)

1.080146
(1.48098)

0.337705
(0.37553)

0.014773
(0.16946)

0.008116
(0.04908)

1.913536
(2.28354)

0.098160
(1.43834)

0.132217
(0.33757)

INF(1)

0.025648
(0.04418)

4.703893
(5.70943)

0.076855
(1.44773)

0.495949
(0.65329)

0.280802
(0.18921)

11.95022
(8.80346)

2.225445
(5.54505)

1.506360
(1.30139)

INF(2)

0.056236
(0.04629)

1.818193
(5.98183)

0.546661
(1.51680)

1.324780
(0.68446)

0.696311
(0.19823)

4.116152
(9.22347)

2.139267
(5.80961)

0.128571
(1.36348)

IR(1)

0.000138
(0.00132)

0.037615
(0.17113)

0.132176
(0.04339)

0.009829
(0.01958)

0.001258
(0.00567)

0.044974
(0.26386)

0.031565
(0.16620)

0.026240
(0.03901)

IR(2)

0.000630
(0.00160)

0.017428
(0.20660)

0.001401
(0.05239)

0.015473
(0.02364)

0.002622
(0.00685)

0.052030
(0.31856)

0.180121
(0.20065)

0.027026
(0.04709)

TB(1)

0.003541
(0.00304)

0.318590
(0.39324)

0.258664
(0.09971)

0.128737
(0.04500)

0.007185
(0.01303)

0.444279
(0.60634)

0.226425
(0.38192)

0.019350
(0.08963)

TB(2)

0.000833
(0.00285)

0.751676
(0.36869)

0.080683
(0.09349)

0.103622
(0.04219)

0.003647
(0.01222)

0.330218
(0.56849)

0.023471
(0.35807)

0.037011
(0.08404)

BD(1)

0.004656
(0.00931)

0.019620
(1.20259)

0.003840
(0.30494)

0.038453
(0.13760)

0.026735
(0.03985)

0.959234
(1.85429)

0.658712
(1.16797)

0.481852
(0.27412)

BD(2)

0.002426
(0.00832)

0.134277
(1.07473)

0.149265
(0.27252)

0.065791
(0.12297)

0.001447
(0.03562)

0.152756
(1.65715)

0.594786
(1.04379)

0.296999
(0.24497)

0.075894
(0.06187)

8.496136
(7.99610)

1.324581
(2.02756)

1.424487
(0.91494)

0.068964
(0.26499)

2.563754
(7.76589)

3.204182
(1.82261)

63.27385
(33.7418)

Notes: Standard errors are reported in ( ).

1.212755
(8.55586)

UR

26.12685
(11.7130)

16.17972
(12.3293)

ARTICLE IN PRESS
132

S. Raq et al. / Resources Policy 34 (2009) 121132

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