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The Effects of Crude Oil Price Surprises on National Income: Evidence from India

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  • Chinnadurai Kathiravan

    (VIT Business School, Vellore Institute of Technology, Vellore 632014, India)

  • Murugesan Selvam

    (Department of Commerce and Financial Studies, Bharathidasan University, Tiruchirappalli 620024, India)

  • Balasundram Maniam

    (Department of General Business and Finance, Sam Houston State University, Huntsville, TX 77340, USA)

  • Leo Paul Dana

    (Faculty of Management, Dalhousie University, Halifax, NS B3H 4R2, Canada)

  • Manivannan Babu

    (Bharathidasan School of Management, Bharathidasan University, Tiruchirappalli 620024, India)

Abstract

The goal of this study is to look into how changes in crude oil prices affect GDP per capita and exchange rate fluctuations.to investigate the influence of crude oil price shocks on GDP per capita and exchange rate movements. This research employed yearly time series data for the price of crude oil, exchange rate (USD/INR), and GDP per capita, from 1990 to 2020. Arithmetical tools such as Descriptive, Unit Root, Granger Causality Test, and OLS Model were applied. The present study discovered a strong bi-directional Granger causality effect of Dubai crude oil prices on exchange rates, as well as a bi-directional Granger influence of exchange rates on WTI crude oil prices. The diagnostic tests were successfully passed by the estimated models. According to the OLS model, the exchange rate was driven only by the price of Dubai crude oil, although the price of WTI crude oil influenced both the GDP per capita and the exchange rate over the research period. The key policy recommendation derived from this analysis is that the Reserve Bank of India (RBI) must depreciate the rupee, first to restore much-needed exchange rate stability, then to stimulate domestic manufacturers, and finally, to attract foreign capital inflows.

Suggested Citation

  • Chinnadurai Kathiravan & Murugesan Selvam & Balasundram Maniam & Leo Paul Dana & Manivannan Babu, 2023. "The Effects of Crude Oil Price Surprises on National Income: Evidence from India," Energies, MDPI, vol. 16(3), pages 1-16, January.
    • Handle: RePEc:gam:jeners:v:16:y:2023:i:3:p:1148-:d:1042450
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