The effects of macroeconomic shocks on the Brunei economy: a sign restriction approach

Wee Koh

    Research output: Contribution to journalArticle

    Abstract

    This paper examines the impact of oil price, foreign monetary policy, and domestic government spending shocks on the Brunei economy from 2003Q1 to 2014Q3 based on a structural vector autoregression model with shocks identified using the sign restriction methodology. The results show that an unanticipated oil price decline has a negative effect on government expenditure, and consequently non-oil GDP. Foreign monetary policy shocks also affect the economy through their impact on the interest rate, prices, and the real exchange rate. The procyclical fiscal stance, which exacerbates the business cycle, is an important source of macroeconomic fluctuations. Government expenditure smoothing should be accorded high importance in the conduct of fiscal policy. This could be achieved by using oil reserve funds to finance budget deficits to delink government spending from volatile oil revenue.
    Original languageEnglish
    Pages (from-to)414-428pp
    JournalJournal of the Asia Pacific Economy
    Volume22
    Issue number3
    DOIs
    Publication statusPublished - 2017

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