Do fluctuations in global crude oil prices have an asymmetric effect on oil product pricing in India?

Abdhut Deheri () and Stefy Carmel ()
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Abdhut Deheri: Vellore Institute of Technology
Stefy Carmel: Madras School of Economics

Economic Change and Restructuring, 2024, vol. 57, issue 1, No 17, 22 pages

Abstract: Abstract This study aims to examine the existence of asymmetry and nonlinearity in the influence of global crude oil price shocks on the pricing of oil products in India during the period spanning from April 2000 to March 2022. Novel symmetry and linearity tests, notably slope and impulse response tests, were used for this purpose. The findings of the slope test indicate the absence of nonlinearity in the reaction of most oil product prices to global crude oil price shocks. In contrast, the results obtained from the impulse response test indicate that except for liquid petroleum gas, all oil product prices exhibit asymmetric responses to both positive and negative crude oil shocks of varying magnitudes. The results align with previous research on the transmission of crude oil prices to oil product prices. Furthermore, these findings confirm the existence of the rockets-and-feathers phenomenon within the Indian oil product market. From a policy perspective, the findings indicate that it would be prudent for the government to contemplate the implementation of tax reductions on oil products. This approach would aid in ensuring a symmetric response of oil product pricing to global changes in crude oil prices and is projected to decrease the welfare loss incurred by consumers as a result of asymmetry.

Keywords: Oil shocks; Oil product pricing; Asymmetry; Impulse response test; India (search for similar items in EconPapers)
JEL-codes: C22 C3 D40 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10644-024-09599-9

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