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

Author

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  • Abdhut Deheri

    (Vellore Institute of Technology)

  • Stefy Carmel

    (Madras School of Economics)

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.

Suggested Citation

  • Abdhut Deheri & Stefy Carmel, 2024. "Do fluctuations in global crude oil prices have an asymmetric effect on oil product pricing in India?," Economic Change and Restructuring, Springer, vol. 57(1), pages 1-22, February.
    • Handle: RePEc:kap:ecopln:v:57:y:2024:i:1:d:10.1007_s10644-024-09599-9
    DOI: 10.1007/s10644-024-09599-9
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    More about this item

    Keywords

    Oil shocks; Oil product pricing; Asymmetry; Impulse response test; India;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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