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Influence of oil prices on inflation in South Asia: Some new evidence

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  • Zakaria, Muhammad
  • Khiam, Shahzeb
  • Mahmood, Hamid

Abstract

The study tries to measure the influence of the world oil prices on inflation rates in South Asian countries using monthly data from 1980M1–2018M12. Empirical analysis is carried not only using cointegration and VAR, but also using nonlinear analysis. The estimated results reveal that cointegration holds among oil prices and inflation in South Asian countries. Linear and non-linear causality tests stipulate that oil price Granger causes inflation. The impulse-response functions indicate that global oil prices shock positively affects inflation in South Asian countries and this impact is permanent. The variance decomposition analysis postulates that global oil price shock does not describe any significant changes in inflation rates in short run, but this variation increases in the long run. Non-linear analysis reveals that the effect of global oil price on inflation is asymmetric. The positive oil price shock increases inflation significantly, while the influence of negative oil price shock is not significant.

Suggested Citation

  • Zakaria, Muhammad & Khiam, Shahzeb & Mahmood, Hamid, 2021. "Influence of oil prices on inflation in South Asia: Some new evidence," Resources Policy, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:jrpoli:v:71:y:2021:i:c:s0301420721000313
    DOI: 10.1016/j.resourpol.2021.102014
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    More about this item

    Keywords

    Oil price; Inflation; Asymmetry; Cointegration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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