Macroeconomic impacts of oil price volatility: Mitigation and resilience

Abstract

Dependency on oil-derived fuels in various sectors, most notably in mobility, has left the global economy vulnerable to several macroeconomic economic side effects. Numerous studies have addressed the effect of price volatility on specific economic parameters. However, the current literature lacks a comprehensive review of the interactions between global macroeconomic performance and oil price volatility (OPV). Price volatility is intrinsic in commodity markets, but has been advancing at a faster rate in the crude oil market in comparison to other commodities over the past decade, reflecting the status of oil as the most globalised commodity. In this paper, the analytical literature review and analysis of the behavioral responses of macroeconomic agents to OPV shows that such volatility has several damaging and destabilizing macroeconomic impacts that will present a fundamental barrier to future sustainable economic growth if left unchecked. To ensure macroeconomic isolation from OPV, a combination of supply and demand-side policies have been recommended that can help to mitigate and build resilience to the economic uncertainty advanced by OPV. © 2014 Higher Education Press and Springer-Verlag Berlin Heidelberg.