Abstract
This study is pursued with the objective to examine the long-run
relationship between inflation and production volume in the crude oil industry. The study employs Engle-Granger
Co-integration tests and Error-Correction Modeling on the monthly data series
extracted from January 1998 through December 2005. The empirical results show there is a positive
relationship between inflation (as proxied by consumer price index) and crude
oil production volume (as proxied by oil production index) but this
relationship is found to be statistically insignificant. The results from the Co-integration analysis
reveal the presence of short-term and long-term relationship between inflation
and crude oil production. The test results from Granger Causality Test within
Error Correction Model shows a bi-directional relationship between the two
tested variable. This implies that the
model can be postulated to be either inflation is a function of oil production
volume or vice versa. Nevertheless, this
study requires further analysis in the future as the findings appear to be
slightly controversial.
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