The Macroeconomics Outcome of Oil Shocks in the Small Eurozone Economies

In this work we provide an analysis over the period 1999 - 2015 of the effects of
oil shocks on prices and GDP in a group of small Euro-area economies. The group includes
Austria, Belgium, Finland, Greece, Ireland, Italy, Netherlands, Portugal and Spain. We use
the structural near-VAR methodology and are thus able to model the joint interaction of
area-wide macroeconomic variables and national variables. We find that under the EMU oil
price shocks have been important drivers of business cycle fluctuations in almost all these
countries. Moreover, an increase in oil prices produces significant recessionary effects in all
the countries included in the investigation. Thus, although there are different sizes in the
responses of output in the investigated countries, our main conclusion is that oil prices (still)
matter for European economies.