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Is the oil price pass-through in India any different?

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  • Mandal, Kumarjit
  • Bhattacharyya, Indranil
  • Bhoi, Binod B.

Abstract

In the wake of deregulation of prices of some petroleum products, we estimate the pass-through impact of international oil prices on the Indian economy. In contrast to global trends, we find evidence of higher pass-through to domestic inflation and industrial output, particularly since 2002 when domestic prices started to adjust more frequently to international oil prices. We also simulate to obtain the potential full pass-through impact if prices were completely deregulated and find that such a pricing strategy could result in significant upsurge of inflation with consequential effect on output. On the other hand, staggered adjustments would deteriorate government finances.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 34 (2012)
Issue (Month): 6 ()
Pages: 832-848

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Handle: RePEc:eee:jpolmo:v:34:y:2012:i:6:p:832-848

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Web page: http://www.elsevier.com/locate/inca/505735

Related research

Keywords: Oil price shock; Pass-through; Inflation; Phillips curve; Generalised VAR;

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References

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  1. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
  2. Herrera, Ana Maria & Hamilton, James D., 2001. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy," University of California at San Diego, Economics Working Paper Series qt4qp0p0v5, Department of Economics, UC San Diego.
  3. Juncal Cuñado & Fernando Pérez de Gracia, 2001. "Do oil price shocks matter? Evidence for some European countries," Working Papers 01-02, Asociación Española de Economía y Finanzas Internacionales.
  4. Davis, Michael C & Hamilton, James D, 2004. "Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 17-37, February.
  5. Zhang, Yue-Jun & Fan, Ying & Tsai, Hsien-Tang & Wei, Yi-Ming, 2008. "Spillover effect of US dollar exchange rate on oil prices," Journal of Policy Modeling, Elsevier, vol. 30(6), pages 973-991.
  6. Jose De Gregorio. & Oscar Landerretche. & Christopher Neilson., 2007. "Another Pass-Through Bites the Dust? Oil Prices and Inflation," Working Papers Central Bank of Chile 417, Central Bank of Chile.
  7. John Burbidge & Alan Harrison, 1982. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," School of Economics Working Papers 1982-01, University of Adelaide, School of Economics.
  8. Cunado, J. & Perez de Gracia, F., 2005. "Oil prices, economic activity and inflation: evidence for some Asian countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(1), pages 65-83, February.
  9. Hooker, Mark A, 2002. "Are Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 540-61, May.
  10. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
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Cited by:
  1. Necibi, Thameur & Issaoui, Fakhri, 2013. "The impact of oil prices on economic activity in administrated price structure: the case of Tunisia," MPRA Paper 50420, University Library of Munich, Germany.

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