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Causal Link between Oil Price and Uncertainty in India - Relazione di causalità tra prezzo del petrolio e incertezza in India

Author

Listed:
  • El Montasser, Ghassen

    (École Supérieure de Commerce de Tunis Université de la Manouba)

  • Aggad, Kenza

    (Department of Economics, University of Pretoria)

  • Clark, Louise

    (Department of Economics, University of Pretoria)

  • Gupta, Rangan

    (Department of Economics, University of Pretoria)

  • Kemp, Shannon

    (Department of Economics, University of Pretoria)

Abstract

This paper investigates the causality between oil price and economic uncertainty in India. In order to test for this relationship, we collect data on the Brent crude oil price as well as the crude oil ETF volatility index. We also use the policy-related economic uncertainty index as well as the stock market volatility index for India. Our results suggest that the standard Granger causality test rejects the hypothesis of causality between oil price changes and economic uncertainty in India. As a result of the shortcoming of the standard Granger test in the presence of parameter instability, we perform Rossi’s (2005) test. It shows that the Brent crude oil price does not have a causal impact on India’s economic uncertainty but the crude oil ETF volatility index does. Clearly, oil and India’s economic uncertainty go hand-in hand. These findings can thus be used in the context of policy recommendation. - Questo studio esamina la relazione di causalità tra prezzo del petrolio e incertezza economica in India. A questo fine abbiamo considerato i prezzi del greggio Brent e l’indice di volatilità dell’ETF sul greggio. Abbiamo utilizzato anche l’indice di incertezza economica collegato alla politica e l’indice di volatilità del mercato azionario in India. I risultati evidenziano che il test standard di Granger-causality rifiuta l’ipotesi di causalità tra le variazioni tra il prezzo del petrolio e l’incertezza economica in India. In conseguenza dell’inadeguatezza del test standard di Granger in presenza di instabilità dei parametri, è stato eseguito il test di Rossi (2005). Quest’ultimo mostra che il prezzo del Brent non ha alcun impatto sull’incertezza economica in India mentre l’indice di volatilità dell’ETF sul greggio ha effetto sull’incertezza. Chiaramente, prezzi petrolio e incertezza economica in India vanno di pari passo. Questi risultati possono essere utilizzati per raccomandazioni sulle scelte politiche da attuare.

Suggested Citation

  • El Montasser, Ghassen & Aggad, Kenza & Clark, Louise & Gupta, Rangan & Kemp, Shannon, 2015. "Causal Link between Oil Price and Uncertainty in India - Relazione di causalità tra prezzo del petrolio e incertezza in India," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 68(4), pages 437-450.
    • Handle: RePEc:ris:ecoint:0762
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    More about this item

    Keywords

    Economic Policy Uncertainty; Stock Market Uncertainty; Oil Price; Time-Varying Causality; India;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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