The effect of 107th OPEC Ordinary Meeting on oil prices and economic performances in Japan

The aim of this paper is to show the influence of the 107th OPEC Ordinary Meeting (meeting) and investigates the relationships between oil prices and economic activities, using an exponential generalized autoregressive conditional heteroskedasticity (EGARCH) and a vector autoregressive (VAR) model from 1991 to 2008 in Japan. We find that levels and volatilities of oil prices increase after the meeting. We examine the effects of it on Japanese economic activities, employing a Granger-causality test and data before and after it. The empirical result reveals that each price of regular gasoline and diesel has information to be useful to predict the economy after the meeting. On the other hand, volatilities of regular gasoline and diesel price have information to predict the inflation and economic growth before the meeting, respectively. After the meeting, however, these volatilities change to be useful to predictive both inflation and economic growth. Thus, we conclude that the decision of meeting is related to not only the domestic oil prices, but also the macroeconomy.