What Happened to the Oil Price and Macro Economy Relationship? Does It Tell the Same Story? A Case of Indian Economy

24 Pages Posted: 13 Jun 2022

Date Written: June 5, 2022

Abstract

This study assesses impact of asymmetric oil price shocks on India’s macro economy by using autoregressive distributive lag (ARDL) model and fully modified ordinary least square (FMOLS). This study covers dataset on monthly frequency from 2004: Q1 to 2020: Q4. Findings from the ARDL model shows that real oil prices and economic growth don’t have short term or long term relationship. In other terms, oil prices fluctuations are no longer able to explain the variations in the index of industrial production. This because of price of petroleum products have been insulated from the volatility of international crude oil prices (Varghese, 2016). However study has found that real effective exchange rate and consumer price index have long run and positive relationship with index of industrial production. From theoratical perspective, recent rise in global crude oil prices can affect to the India’s inflation through the exchange rate pass through effect.

Keywords: Crude oil price, Index of industrial production, ARDL model, economic growth, India, CUSUM Test, CUSUMSQ.

JEL Classification: E00, E10, E17, E44

Suggested Citation

Ingole, Somnath, What Happened to the Oil Price and Macro Economy Relationship? Does It Tell the Same Story? A Case of Indian Economy (June 5, 2022). Available at SSRN: https://ssrn.com/abstract=4128249 or http://dx.doi.org/10.2139/ssrn.4128249

Somnath Ingole (Contact Author)

Indian Institute of Science ( email )

Bangalore, IN Karnataka 560012
India

HOME PAGE: http://https://csp.iisc.ac.in/somnathingole/

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