| Summary: | The need for oil price shocks to be understood by economists and policy makers within government is paramount, as it is such a highly used and much needed commodity in the global market place.
The following research project discusses the strong relationship that oil prices share with the pricing of everyday consumer goods/services in the United Kingdom. This is done by performing a structural vector auto-regression (SVAR) analysis using Stata, and incorporating the price of crude oil, global industrial production and the world crude oil production to represent the global market. Nine categories of the United Kingdom consumer price index, including aggregate-level pricing, were also used to represent varying types of consumer spending. Cumulative impulse response function (CIRF) graphs were produced to show how each category responded to the underlying oil price shocks.
The results indicate that the nature of an oil price shock can cause varying effects on the prices of everyday items in any economy; with the price of the same good/service being affected differently depending on the nature of the shock.
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