Estimating the effects of global oil market shocks on Australian merchandise trade

In this paper, we examine the dynamic responses of Australian merchandise trade to global oil market structural shocks. The analysis employs monthly data over the period June 1986 to January 2013 and vector generalized autoregressive conditional heteroscedasticity (VGARCH), structural vector autoregression (SVAR), and parametric nonlinear models. We find that an increase in the oil price driven by shocks in global economic activity exerts a significant influence on Australian merchandise exports, and thereby merchandise trade as a whole, for periods of more than one year. However, the responses of merchandise imports to oil price shocks are more modest and persist for only a few months. Finally, uncertainty in future global oil prices, as measured by volatility in the 3-month-ahead price, strongly and negatively affects Australian international commodity markets.