Measuring the impact of oil supply and demand shocks in Puerto Rio’s economic growth

Abstract

This study measures the impact of oil supply and demand shock, and global aggregate demand shock on Puerto Rico’s economic growth. This was achieved using a four-variable Structural Vector Autoregression. Through the impulse response functions, it was possible to demonstrate that the demand and supply shocks of crude oil do not have a significant effect on the economic growth of the island, in turn, these results were supported by the variance decomposition of the structural shocks. However, it was found that these shocks tend to increase inflation, for a period of approximately four months after the initial shock and explain about 31% of the variation in the Consumer Price Index.