Does Indian economy asymmetrically respond to oil price shocks?

This article investigates whether oil price shocks have an asymmetric impact on certain key macroeconomic variables, viz., industrial output, inflation, exchange rates, and stock returns in India. The empirical evaluation of this issue involves using recently developed slope and impulse response-based symmetry tests advocated by Kilian and Vigfusson (2011a). The evidence based on Wald test indicate that there is asymmetry and nonlinearity in the response of macroeconomic variables to oil price shocks. The evidence obtained from impulse responses suggests that most of the macroeconomic variables asymmetrically respond to small and large oil price shocks over different forecast horizons. However, electricity production, nominal effective exchange rate, stock return and inflation measure based on wholesale price index respond symmetrically to oil price shocks using the slope test. These findings are found to be robust to alternative lag structures utilized in the estimation.