SHOCK OF WORLD OIL PRICE AND ITS IMPLICATION ON INDONESIAN ECONOMY WITH VECTOR AUTOREGRESSIVE (VAR) APPROACH

Oil is the main component in driving the economic engine of the manufacturing and the transportation sector. Strategic play role of oil in the economy, in national and global scale, is impact on the stability of macroeconomic variables such as exchange rates, interest rates, consumer price index and economic growth. The 2 ��� Imamudin Yuliadi dynamics of world oil prices are determined by the movement of the supply and demand side. World oil production is produced by the countries who are members of organizations OPEC and non-OPEC. OPEC (Organization of Petroleum Exporting Countries) is an organization of the world oil cartel that collects oil producing countries - including Indonesia – to organize the oil production quotas for each country in order to control the world oil price. However, world oil production was also affected by the oil production from countries non-OPEC. At the time of rising world oil production will push world oil prices decline and vice versa. While on the other hand permintsuatu (demand) the world’s oil is influenced by the economic growth of industrialized countries to move their industrial machinery as well in addition to transportation and other energy needs. World oil demand is also influenced by climatic factors which world oil prices tend to rise during the winter because the demand for oil to drive increased space heating energy. There is a tendency of world oil demand over the years continued to rise along with economic growth in industrialized countries while on the other side reserves (stock) world oil thinned, so that at some point the community will be faced with the reality that the world’s oil reserves will be exhausted. Fluctuations in world oil prices in addition to economic factors also influenced by non-economic climate, political conflict, policy changes large countries, the change of political regime, market speculation, etc. There are two standards in the pricing of oil, they are Brent Crude and West Texas Intermediate (abbreviated as WTI). Brent oil is the default value which based on the results of ocean exploration; it is opened in 1970 and became the basis for the establishment of world oil prices to around 40% of world oil since 1971. However, due to the tendency of oil production in the North Sea, Brent Europe has decreased, the starting year 2007 began to develop a new standard that WTI oil prices. In contrast to Brent based on oil production in the North Sea of Europe to WTI based on the results of US oil production in Texas, it was applied to the oil production industry make lots of demand in industrialized countries, especially China and the US. Indonesia, as the small state economies is highly influenced by fluctuations in world oil prices. Indonesia as well as a member of OPEC, is also a net oil importer to meet the needs of oil tends to rise in value. Changes in oil prices affect the amount of foreign exchange reserves as well as its impact on other macro-economic scale, namely the exchange rate, inflation rate, stock index and interest rates. Here are presented data on the development of world oil prices in recent months: Fluctuations in world oil prices are influenced by many factors, economic factors or non-economic. The political crisis between Saudi Arabia and Iran triggers the increasing of oil price, however the increase of world oil supplies by OPEC and non-OPEC members could potentially decrease the oil prices and wil