The Effects of Uncertainty in Energy Prices on the Economy of the Caspian Sea Countries: Evidences from Russia, Kazakhstan and Azerbaijan

Abstract

By taking into account the role of crude oil in the world economy, the prices of petrol become one of the main indicators of the economic growth. In addition, the uncertainty in the price of crude oil has various effects in both oil exporting and importing countries. However, oil-producing countries are more vulnerable to the volatility in crude oil prices. Countries in the Caspian Sea region, including Russia, Kazakhstan and Azerbaijan depend heavily on oil export revenues, therefore, the uncertainty in oil prices influences macroeconomic variables in these nations. This thesis empirically examined the effects of uncertainty in crude oil prices on the gross domestic product in the selected countries using some macroeconomic variables such as exchange rates, interest rates, inflation rates and oil prices (Brent). Autoregressive Distributed Lag model was used to assess the long run and short run relationship between the volatility in oil prices and the gross domestic product (GDP). The result of the thesis indicates that the gross domestic product (GDP) responds to the uncertainty in oil prices for both short and long run, although at varying degrees. Based on the results of the estimation, the uncertainty in oil prices has negative impact on the gross domestic product for all three countries in both the long term and the short term. Meanwhile, our findings indicate that the effect of oil price uncertainty on the gross domestic product (GDP) in the short-run is greater than in the long-run. The results of this thesis have significant implications for policymakers.