Oil price shocks on Swedish economy : Case study on the oil's effect on a small country.

Sammanfattning: We estimate the macroeconomic performance in terms of inflation and GDP growth of Sweden in relations to oil price shocks, focusing on the differences across two periods, pre and post 2008. By using a Vector Error Correction model and linear hypothesis testing we can see short term and long term correlations between the nominal oil price and three dependent variables, GDP, CPI and GDP deflator. Our hypothesis is that the effects of oil price shocks are indifferent across our estimation period and this would be in line with previous literature.  We find that the macroeconomic factors of GDP and inflation responds differently post 2008 and by using impulse response functions (IRFs) we can see how the dependent variables responds to an oil price shock. They show that oil shocks have permanent effects in GDP and GDP deflator but transitory effects in CPI, we found short run causality for GDP and CPI but not for GDP deflator.