Causal Relationships between Oil Prices and Key Macroeconomic Variables in India

Kamal Upadhyaya, Raja Nag and Franklin Mixon
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Raja Nag: Department of Accounting and Financial Studies, New York Institute of Technology, Glen Head, NY 11545, USA

IJFS, 2023, vol. 11, issue 4, 1-10

Abstract: India is among the largest and fastest-growing economies in the world. To continue its growth, energy is and will continue to be one of its most important considerations. With a population of over one billion, India is the third largest consumer of petroleum on the globe. To maintain this ranking, India imports a large percentage of its total oil consumption. Given India’s current position as a large importer of oil, how does oil price volatility affect the Indian economy? This paper examines the effect of oil price volatility on inflation, economic growth, and the stock market in India. Statistical tests suggest that the overall price level, the real effective exchange rate, and oil prices are negatively related to aggregate output in the long run. Granger causality test results derived from a vector error correction model support bidirectional causality between oil prices and aggregate output, indicating that a change in oil prices also affects aggregate output in the short run.

Keywords: oil prices; aggregate output; inflation; real exchange rates; stock prices; India (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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