Abstract
The main purpose of this paper is to investigate the effects of the oil-price and US business cycle shocks on the aggregate price and output of Taiwan by using the VAR analysis. The results suggest that an increase in oil supply shock leads to short-run increases in the output and decreases in the wholesale price index of Taiwan. In contrast, an increase in the aggregate demand and oil specific demand shocks lead to short-run increases in the output as well as wholesale price index of Taiwan. The US business cycle shock also has positive effects on both output and the wholesale price index. If the responses of macroeconomic variables to oil shocks are decomposed into direct and indirect responses, the results suggest that oil shocks have significant direct effects on macroeconomic variables, but those effects are largely offset by indirect effects.