Causal Link between Oil Price and Uncertainty in India - Relazione di causalità tra prezzo del petrolio e incertezza 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, Postal: Pretoria, 0002, South Africa, http://www.up.ac.za/
Louise Clark: Department of Economics, University of Pretoria, Postal: Pretoria, 0002, South Africa, http://www.up.ac.za/
Shannon Kemp: Department of Economics, University of Pretoria, Postal: Pretoria, 0002, South Africa, http://www.up.ac.za/

Economia Internazionale / International Economics, 2015, vol. 68, issue 4, 437-450

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. - Questo studio esamina la relazione di causalità tra prezzo del petrolio e incertezza economica in India. A questo fine abbiamo considerato i prezzi del greggio Brent e l’indice di volatilità dell’ETF sul greggio. Abbiamo utilizzato anche l’indice di incertezza economica collegato alla politica e l’indice di volatilità del mercato azionario in India. I risultati evidenziano che il test standard di Granger-causality rifiuta l’ipotesi di causalità tra le variazioni tra il prezzo del petrolio e l’incertezza economica in India. In conseguenza dell’inadeguatezza del test standard di Granger in presenza di instabilità dei parametri, è stato eseguito il test di Rossi (2005). Quest’ultimo mostra che il prezzo del Brent non ha alcun impatto sull’incertezza economica in India mentre l’indice di volatilità dell’ETF sul greggio ha effetto sull’incertezza. Chiaramente, prezzi petrolio e incertezza economica in India vanno di pari passo. Questi risultati possono essere utilizzati per raccomandazioni sulle scelte politiche da attuare.

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)
Date: 2015
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