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

  • Ashima Goyal

    (Indira Gandhi Institute of Development Research)

  • Arjun Singh

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 East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22374.

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Date of creation: Jan 2006
Date of revision:
Handle: RePEc:eab:macroe:22374
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  1. Quah, Danny, 1995. "Measuring Core Inflation," CEPR Discussion Papers 1153, C.E.P.R. Discussion Papers.
  2. Michael F. Bryan & Stephen G. Cecchetti, 1993. "Measuring Core Inflation," NBER Working Papers 4303, National Bureau of Economic Research, Inc.
  3. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  4. Ashima Goyal & Ayan Kumar Pujari, 2005. "Analyzing Core Inflation in India: A Structural VAR Approach," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(2), pages 76- 90, May.
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  8. Hilde C. Bjørnland, 2000. "Identifying Domestic and Imported Core Inflation," IMF Working Papers 00/4, International Monetary Fund.
  9. Goyal, Ashima & Pujari, Ayan Kumar, 2005. "Identifying long run supply curve of India," MPRA Paper 24021, University Library of Munich, Germany.
  10. Hilde Christiane Bj�rnland, 2001. "Identifying domestic and imported core inflation," Applied Economics, Taylor & Francis Journals, vol. 33(14), pages 1819-1831.
  11. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
  12. 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.
  13. Danny Quah & Danny Quah & Shaun P. Vahey, 1995. "Measuring Core Inflation," CEP Discussion Papers dp0254, Centre for Economic Performance, LSE.
  14. Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038, June.
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