Oil Price, Exchange Rate and the Indian Macroeconomy

Taniya Ghosh

MPRA Paper from University Library of Munich, Germany

Abstract: General discussions on the Indian macroeconomy have centred on two things in the recent past: the impact of depreciation of rupee and the effects of falling world oil prices. Using the structural vector autoregressive approach, the dynamic relationship between movements in oil prices and exchange rates with macroeconomic variables like price, output, interest rate and money are investigated. Additionally, a comparative analysis is conducted to show how each of these structural shocks has historically affected price, output and exchange rate. The results show strong link among these variables. Three results have important policy implications: (i) the world price of oil has a great potential to affect India’s output, (ii) targeting depreciation of rupee to expand output may not be an effective policy tool for the RBI, and (iii) variation in rupee’s value can have medium- to long-term impact on world price of oil.

Keywords: Money; Structural VAR; Exchange rate; Price; Output (search for similar items in EconPapers)
JEL-codes: E0 E00 F0 (search for similar items in EconPapers)
Date: 2016-10-01
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Published in Economic and Political Weekly vol lI.40(2016): pp. 55-62

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Related works:
Working Paper: Oil Price, Exchange Rate and the Indian Macro Economy (2016)
Working Paper: Oil price, exchange rate and the Indian macro economy (2016)
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