Impact of Oil Price Fluctuations on Inflation and Interest Rates in OPEC Plus Countries
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Abstract
This paper discusses the relationship between oil price volatility and macroeconomic variables, namely inflation and interest rates, in OPEC Plus countries between 1991 and 2022. The importance of this study is underlined by the fact that it will show the economic vulnerability of these countries to changes in the price of oil since their economies are heavily dependent on the revenue generated from oil, which makes them susceptible to economic turmoil caused by changes in the price of oil. Such changes in oil prices influence macroeconomic stability twofold: immediate and indirect influences; the research will focus on how upward and downward changes in oil prices influence inflation rates and interest rates.
The study utilized a multilevel logit regression model (Panel OLS), revealing that increasing oil prices correlate with higher inflation rates, while their impact on interest rates varies based on the monetary policies implemented across different countries. This paper therefore hypothesizes that a change in the price of oil significantly influences the inflation and interest rates of oil-exporting nations and that these negative effects can be cushioned through adaptable economic policies. These results emphasize the need for efficient strategies to be developed to lessen the adverse effects of volatility in oil prices on macroeconomic stability and build resilience to such shocks.
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