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Through a Glass Darkly: Deciphering the Impact of Oil Price Shocks

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Author Info
Ashima Goyal ()
Abstract

In order to examine if the impact of oil price shocks depends on the structure of an economy, a vertical (VSC) and a horizontal (HSC) long-run supply curve identification are successively imposed on a three variable VAR with Indian time series data. While core inflation is measured with the VSC, the HSC requires a new concept of demand-driven inflation: Residual (demand) inflation, which gives the impact of short and medium run demand shocks on inflation. Core and residual inflation are both estimated. The data favors the HSC, but both identifications imply that policy demand squeeze aggravated international oil price shocks.

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Paper provided by esocialsciences.com in its series Working Papers with number id:1826.

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Date of creation: 2009
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Handle: RePEc:ess:wpaper:id:1826

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Related research
Keywords: VAR; identification strategies; developing economy; residual; output; labor surplus; oil price; economy; vertical; horizontal; VSC; HSC; supply curve; inflation; time series; data; demand; residual; India; Indian;

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  5. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  6. Michael F. Bryan & Stephen G. Cecchetti, 1993. "Measuring Core Inflation," NBER Working Papers 4303, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. James D. Hamilton, 2000. "What is an Oil Shock?," NBER Working Papers 7755, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand. [Downloadable!]
  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.
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