Measuring Business Cycle Stylized Facts in Selected Oil-Producing Economies: A Comparative Study

Abstract

AbstractWe document the stylized facts relating to the contemporary business cycle in eleven oil-producing economies that account for over 65% of global oil production using a set of macroeconomic aggregates covering the period 1981 to 2021. In the context of Nigeria, a vector autoregression analysis is used to measure a one standard deviation oil price shock on time series such as trade balance, real GDP, inter alia. Our study is unique in that we compared four different detrending techniques, including Hodrick–Prescott (HP), Baxter-King, Christiano–Fitzgerald, and Butterworth filters. This is a departure from the conventional method of relying on the HP filter, which has been known to have limitations, particularly in the context of oil-producing economies. Our findings indicate that the selected oil-producing economies with countercyclical inflation patterns suggest that supply shocks drive the business cycles. Conversely, the oil-producing economies with inflation in sync (procyclical) with the business cycle suggest that demand shocks may be the primary driver of business cycle variations. Additionally, our study shows that oil price innovations lead to higher inflation in Nigeria.