THE IMPACT OF OIL PRICE CHANGES ON THE ECONOMIC ACTIVITY OF REPUBLIC OF CROATIA

Inflation is an old phenomenon that has it's roots and influences in every country worldwide, regardless if it is more or less developed. The beginning of this century registered a light prices increase, but the much more stronger increase of the last two years was caused by the huge increase of the worldwide most significant energy - oil, which consequently led to the increase of other energy-generating products, energy itself, food products and transport. The question is which implications have the world market oil-price trend on the economic activity of single economies. The purpose of this paper is to identify the relationships between the world oil-price increase and the domestic retail oil prices and inflation in Croatia. We also tried to establish the volume and analyse how the oil price increase effect influences a small and open economy, such as Croatian, which doesn't have significant natural oil resources. In order to analyse the retail oil and lubricant price change effect on the economic activity in Croatia, the VAR model from "general-to-specific" is used. The results of the conducted analysis are similar to those obtained from analysis in other world countries.