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Are the Responses of Oil Products Prices Asymmetrical to Global Crude Oil Price Shocks? Evidence from India

Author

Listed:
  • Abdhut Deheri

    (Assistant Professor, School of Social Sciences and Languages, Vellore Institute of Technology, Vellore)

  • Stefy Carmel

    (Lecturer/ Research Associate, Madras School of Economics, Chennai)

Abstract

The paper examines the existence of asymmetry and nonlinearity in the influence of global crude oil price shocks on oil product prices in India for the time period April 2000 to March 2022. For the purpose, novel assessments of symmetry and linearity, namely slope and impulse response tests, have been utilized. The findings of the slope tests indicate that there is absence of nonlinearity in the reaction of the majority of oil product prices to global crude oil price shocks. In contrast, the results obtained from the impulse response test indicate that with the exception of liquid petroleum gas, all oil product prices exhibit asymmetric responses to positive and negative crude oil shocks of varying magnitudes. The findings are in line with prior research on the transmission of oil prices to oil product prices and provide evidence for the existence of a rockets-andfeathers phenomenon in the Indian oil products market. From a policy standpoint, the results suggest the government to consider reducing taxes on petroleum products. This measure would help to ensure a symmetric response of oil product prices to global fluctuations in crude oil prices and expected to mitigate the welfare loss experienced by consumers due to the presence of asymmetry

Suggested Citation

  • Abdhut Deheri & Stefy Carmel, 2024. "Are the Responses of Oil Products Prices Asymmetrical to Global Crude Oil Price Shocks? Evidence from India," Working Papers 2024-265, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2024-265
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    More about this item

    Keywords

    Oil shocks; Oil products prices; Asymmetry; Non-linearity; Slope test; Impulse response test; India.;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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