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Modelling the Dynamic Linkage Amidst Energy Prices and Twin Deficit in India: Empirical Investigation within Linear and Nonlinear Framework

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  • Mohammad Asif

    (College of Administrative and Financial Sciences, Saudi Electronic University, Riyadh 11673, Saudi Arabia)

  • Vishal Sharma

    (School of Commerce and Economics, Presidency University, Bengaluru 560024, Karnataka, India)

  • Vinay Joshi Chandniwala

    (School of Commerce and Economics, Presidency University, Bengaluru 560024, Karnataka, India)

  • Parvez Alam Khan

    (Department of Finance, School of Business, Woxsen University, Hyderabad 502345, Telangana, India)

  • Syed Mohd Muneeb

    (Institute of Business Management, GLA University, Mathura 281406, Uttar Pradesh, India)

Abstract

Energy and electricity are critical prerequisites for every nation and critical components of social and economic growth. The monetary policy economist has been debating the issue of relying on core inflation or headline inflation, which includes energy, because the energy price is so volatile that it obscures the trend in inflation and dilutes the objectives of monetary policy. This paper aims at analyzing the impact of the twin deficit on energy inflation within a linear and nonlinear framework in India using time series data covering the period from 1971 to 2021. ARDL and NARDL approaches are employed to investigate the linear/symmetric response of energy inflation due to the twin-deficit in India. Estimates show a negative relationship between the twin-deficit and energy inflation in a symmetric model. The results of the asymmetric model reveal that the response of energy inflation due to expansionary fiscal policy (increment in CFD) and contractionary fiscal policy (decline in CFD) is diverse, in terms of size of the coefficient. Further, estimates of NARDL show the distinct impact of increases and decreases in CAD on energy inflation. The study offers several implications for policymakers and energy economists.

Suggested Citation

  • Mohammad Asif & Vishal Sharma & Vinay Joshi Chandniwala & Parvez Alam Khan & Syed Mohd Muneeb, 2023. "Modelling the Dynamic Linkage Amidst Energy Prices and Twin Deficit in India: Empirical Investigation within Linear and Nonlinear Framework," Energies, MDPI, vol. 16(6), pages 1-23, March.
    • Handle: RePEc:gam:jeners:v:16:y:2023:i:6:p:2712-:d:1097099
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