The Impact of Oil Prices on Canadian Economic Activity

Title: The Impact of Oil Prices on Canadian Economic Activity
Authors: Thiagamoorthy, Priscilla
Date: 2012
Abstract: In this paper, a series of vector autoregression (VAR) models are developed to empirically evaluate the effects of higher oil prices on macroeconomic performance in Canada. Macroeconomic performance is measured using two benchmarks, namely GDP and GDI. This study shows that oil price increases have a negative impact on real GDP and a positive effect on real GDI. Although in economic theory, GDP should equal GDI, in reality these two measures differ. The significant upsurge in real commodity prices over the last decade, coupled with the lower cost of imported consumer goods from emerging markets, have led to large improvements in our terms of trade and generated large gains in real income. This is not accounted for under real GDP calculations. Therefore, when analyzing the effect of higher oil prices on the Canadian economy, this paper finds that real GDI may be a more appropriate variable to use instead of real GDP and concludes that higher oil prices are ultimately good for the economy.
CollectionScience économique - Mémoires // Economics - Research Papers