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Oil prices and trade balance: A wavelet based analysis for India

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Author Info

  • Aviral Kumar Tiwari

    ()
    (ICFAI University Tripura, Tripura, India)

  • Olaolu Richard Olayeni

    ()
    (Department of Economics, Obafemi Awolowo University, Nigeria)

Abstract

The study examinations lead-lag relationship between real oil price (ROP) and real trade balance (RTB) for India using monthly data and covering period from January 1980 to December 2011. To in depth examine the issue, study decomposes the time-frequency relationship between ROP and RTB utilising continuous wavelet approach. Result of the Rua's (2010) measure of wavelet cohesion show that there was high degree of positive correlation in the 0.25-0.5 years-scale corresponding to 1983-1984 and 1986-1989; and in the 0.75-2 years-scale corresponding to 2008-2010. However, evidence of high negative correlation was found in 0.5-1 years-scale corresponding to 1987-1990, 1994-1996 and 2001-2005 and evidence of strong negative correlation was found in 1.75-2.25 years-scale corresponding to 1990-1997. Further, results of wavelet coherence analysis show that in the significant region of coherency and corresponding year-scales, real oil price was leading over India's trade balance indicating that an increase in the oil price will increase India's trade balance. These results corroborate the findings in Le and Chang (2013) and contrary to the findings in Hassan and Zaman (2012).

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File URL: http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I3-P213.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 33 (2013)
Issue (Month): 3 ()
Pages: 2270-2286

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Handle: RePEc:ebl:ecbull:eb-13-00405

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Keywords: Oil prices; Trade balance; Wavelet analysis; India;

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References

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  1. António Rua, 2010. "Measuring comovement in the time-frequency space," Working Papers w201001, Banco de Portugal, Economics and Research Department.
  2. Luca Guerrieri & Christopher Erceg & Martin Bodenstein, 2008. "Oil Shocks and External Adjustment," 2008 Meeting Papers 945, Society for Economic Dynamics.
  3. Lutz Kilian & Alessandro Rebucci & Nikola Spatafora, 2007. "Oil Shocks and External Balances," Working Papers 562, Research Seminar in International Economics, University of Michigan.
  4. António Rua & Luís Catela Nunes, 2009. "International comovement of stock market returns: a wavelet analysis," Working Papers w200904, Banco de Portugal, Economics and Research Department.
  5. Le, Thai-Ha & Chang, Youngho, 2013. "Oil price shocks and trade imbalances," Energy Economics, Elsevier, vol. 36(C), pages 78-96.
  6. Bollino, Carlo Andrea, 2007. "Oil prices and the U.S. trade deficit," Journal of Policy Modeling, Elsevier, vol. 29(5), pages 729-738.
  7. Backus, David K. & Crucini, Mario J., 2000. "Oil prices and the terms of trade," Journal of International Economics, Elsevier, vol. 50(1), pages 185-213, February.
  8. Kim, In-Moo & Loungani, Prakash, 1992. "The role of energy in real business cycle models," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 173-189, April.
  9. Barsky, Robert & Kilian, Lutz, 2004. "Oil and the Macroeconomy Since the 1970s," CEPR Discussion Papers 4496, C.E.P.R. Discussion Papers.
  10. Tiwari, Aviral Kumar, 2013. "Oil prices and the macroeconomy reconsideration for Germany: Using continuous wavelet," Economic Modelling, Elsevier, vol. 30(C), pages 636-642.
  11. Luís Aguiar-Conraria & Maria Soares, 2011. "Oil and the macroeconomy: using wavelets to analyze old issues," Empirical Economics, Springer, vol. 40(3), pages 645-655, May.
  12. Hassan, Syeda Anam & Zaman, Khalid, 2012. "Effect of oil prices on trade balance: New insights into the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2125-2143.
  13. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
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Citations

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Cited by:
  1. Zied Ftiti & Aviral Tiwari & Ibrahim Fatnassi, 2014. "Oil price and macroeconomy in India - An evolutionary cospectral coherence approach," Working Papers 2014-068, Department of Research, Ipag Business School.
  2. Gazi Salah Uddin & Aviral Kumar Tiwari, 2013. "Measuring co-movement of oil price and exchange rate differential in Bangladesh," Economics Bulletin, AccessEcon, vol. 33(3), pages 1922-1930.

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