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The Macroeconomic Effects of Oil Price Shocks: Empirical Evidence for India

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  • Surender Kumar

    (TERI University, New Delhi, India)

Abstract

This study assesses the oil prices-macaroeconomy relationship by means of multivariate VAR using both linear and non-linear specifications. Scaled oil prices model outperforms other models used in the study. It studies the impacts of oil price shocks on the growth of industrial production for Indian economy over the period 1975Q1-2004Q3. It is found that oil prices Granger cause macroeconomic activities. Evidence of asymmetric impact of oil price shocks on industrial growth is found. Oil price shocks negatively affect the growth of industrial production and we find that an hundred percent increase in oil prices lowers the growth of industrial production by one percent. Moreover, the variance decomposition analysis while putting the study in perspective finds that the oil price shocks combined with the monetary shocks are the largest source of variation in industrial production growth other than the variable itself.

Suggested Citation

  • Surender Kumar, 2009. "The Macroeconomic Effects of Oil Price Shocks: Empirical Evidence for India," Economics Bulletin, AccessEcon, vol. 29(1), pages 15-37.
    • Handle: RePEc:ebl:ecbull:eb-08e00022
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    References listed on IDEAS

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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