THE RELATIONSHIP BETWEEN OIL PRICE SHOCKS AND ECONOMIC GROWTH STRUCTURE: EVIDENCE FROM JAPAN

Japan is a net oil-importing country, but some empirical studies used different Vector Auto-regressive (VAR) models to find the positive relationship between oil price shocks and Japan's real GDP growth since 1985. We found until now no study explaining Japan's unusual reaction to oil price shocks. This paper uses three kinds of structural bivariate VAR models to interpret this problem. Prior to 1985, Japan economy showed typical responses to oil price shocks, such as decreasing real GDP. In order to explain Japan economy special responses to oil price shocks since 1985, based on the perspective of economic growth structure, we investigated the share of expenditure in Japan's national income for each term and found that reduced private consumption, as well as, higher investment and exports, caused Japan's real GDP to increase.