The changes in oil prices will give the direct in indirect impacts towards the macroeconomic variables. This article addressed the relationship between oil prices and inflation, growth rate, government spending and unemployment rate in Vietnam. The variables that have been used were oil price, inflation, growth, government spending and unemployment rate. This studies reviewing previously published theory and research on certain topics. The studies captured Nguyen et al interest because previous case studies do not include Vietnam and the studies that made in Vietnam only focused on growth and inflation. The niche of this study is focused in the influence of oil price shocks on the macroeconomic indicator which the previous studies do not evaluate appropriately.Nguyen et al found out that the increase in oil prices cause the production increase.
Thus, it will lower the profit of the business that uses oil as their production input. As the business obtained lower profit, the amount of tax that it must paid to the government is less. This results to higher budget deficit. Nguyen et al stated that the total budget revenue in Vietnam is decreasing over years.
Although Vietnam is one of the crude oil exporting country, the increase in oil price does not contribute to the budget revenue. The increase in the oil prices makes the policymakers need to tighten the monetary policy. The monetary policy is tightened by increasing the interest rate. It makes the enterprises difficult to make their investment decision or reduce their investment as it become more risky. The consumers lessen their saving as they need to spend more on their household.
This results to higher consumer prices index which lead to inflation.Nguyen et al also carried out a research on the how budget deficit and unemployment responses towards the inflation and gross domestic product (GDP). They found out that the inflation causes the budget deficit to rises after a few quarters and decrease continuously afterwards while the GDP lead the budget deficit to increase after a few quarters and slowly decrease after that.
Hence, from the Nguyen et al studies, it can be concluded that the oil price has the positive relationship with the inflation and budget deficit. The oil price shows a positive relationship towards GDP growth and inflation in the short term. However, the relationships are insignificant in the long term.