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Is the oil price pass-through to domestic inflation symmetric or asymmetric? new evidence from India based on NARDL

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  • Abu-Bakar, Muhammad
  • Masih, Mansur

Abstract

With 80% oil dependence, which is expected to further increase in coming years due to rapid expansion, and the reforms initiated to deregulate domestic oil market, the association between global oil prices and inflation in India has increased. Using the autoregressive distribution lag (ARDL) and the nonlinear and asymmetric autoregressive distribution lag (NARDL) framework, we investigate the association between global oil prices and inflation. The ARDL results indicate no association between the two, whereas NARDL findings not only point to long term association but also indicates asymmetric pass-through. Precisely, domestic prices increase with the increase in global oil prices but the decrease in global oil prices has no significant association with the domestic prices. These results are robust to the inclusion of additional variables, different proxy of oil prices (WTI crude) and different time period (January 2003 to January 2018). The contrasting results obtained from the ARDL and the NARDL modelling highlight the importance of using non-linear framework, especially in high oil dependence country with non-competitive market structure. The results have implications for welfare assessment and the effectiveness of monetary policy.

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  • Abu-Bakar, Muhammad & Masih, Mansur, 2018. "Is the oil price pass-through to domestic inflation symmetric or asymmetric? new evidence from India based on NARDL," MPRA Paper 87569, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:87569
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    References listed on IDEAS

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    Cited by:

    1. Pessey, Snowdein, 2023. "Effects of Petroleum Deregulation and Petroleum Taxation Policies On Inflation In Ghana," MPRA Paper 120313, University Library of Munich, Germany.
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    3. Christina Anderl & Guglielmo Maria Caporale, 2023. "The Asymmetric Impact of Economic Policy and Oil Price Uncertainty on Inflation: Evidence from Developed and Emerging Economies," CESifo Working Paper Series 10276, CESifo.
    4. Tersoo Shimonkabir Shitile & Nuruddeen Usman, 2020. "Disaggregated Inflation and Asymmetric Oil Price Pass-Through in Nigeria," International Journal of Energy Economics and Policy, Econjournals, vol. 10(1), pages 255-264.
    5. Grzegorz Przekota, 2022. "Do High Fuel Prices Pose an Obstacle to Economic Growth? A Study for Poland," Energies, MDPI, vol. 15(18), pages 1-15, September.

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    More about this item

    Keywords

    Oil Price; Inflation; asymmetry; India; non-linear ARDL;
    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
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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