Causal Link between Oil Price and Uncertainty in India

Ghassen El Montasser, Kenza Aggad (), Louise Clark (), Rangan Gupta and Shannon Kemp ()
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Kenza Aggad: Department of Economics, University of Pretoria, South Africa.
Louise Clark: Department of Economics, University of Pretoria, South Africa.
Shannon Kemp: Department of Economics, University of Pretoria, South Africa.

No 201467, Working Papers from University of Pretoria, Department of Economics

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.

Keywords: Economic policy uncertainty; stock market uncertainty; oil price; time-varying causality; India (search for similar items in EconPapers)
JEL-codes: C14 C32 D80 E20 E66 G18 Q43 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2014-11
New Economics Papers: this item is included in nep-ene and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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