A COMPARISON OF THE EFFECTS OF OIL PRICE SHOCKS ON JAPAN AND US

Some papers used different VAR models to confirm the positive relationship between oil price shocks and Japan's real GDP growth since 1985. Until now, there have been no known studies which explain Japan's unusual reaction to oil price shocks. This paper uses three kinds of structural bivariate VAR model to compare the effects of oil price shocks on Japan and the US. We first confirm that the US economy always decreases in terms of real GDP after an oil price shock, but in Japan's case there is an increase in real GDP in 1986-2010. In order to explain Japan's special response, we investigate the share of expenditure in Japan's national income for each term and find that reduced private consumption, as well as higher investment and exports, caused Japan's real GDP to increase for the first time. We can use this method to interpret why US real GDP is decreasing in full sample periods. Moreover, we find that there is Granger causality between investment and exports in the Japanese economy in the most recent two decades.