Causes and Effects of Crude Oil Price Shocks

The Thesis aims at finding causes and effects of crude oil price shocks by means of investigating the relationships between crude oil prices, U.S. Gross Domestic Product, U.S. Consumer Price Index, U.S. dollar strength index and crude oil inventories based on quarterly time series for the period 1986Q1 – 2015Q1. Vector Autoregression, Vector Error Correction Model and Granger Causality tests reveal that crude oil prices Granger cause inflation and crude oil inventories, while bidirectional negative Granger causality runs between crude oil prices and the dollar strength index. Additionally, negative Granger causality is found to run from the dollar strength index to the consumer price index, while bidirectional Granger causality is detected between crude oil inventories and Gross Domestic Product. The results on the causes and effects of oil price shocks can be incorporated in business planning and policy making by factoring in the dollar strength and inflation.