Volume No. 7 Issue No.: 4A Page No.: 1661-1668 April-June 2013

 

ESTIMATES OF OIL PRICE ELASTICITY IN INDIA

 

Malwade Varsha

Department of Economics, Ramnarain Ruia College, University of Mumbai, Mumbai (INDIA)

 

Received on : October 05, 2012

 

ABSTRACT

 

The relationship between oil price fluctuations and soaring growth rates of various economies has always attracted growing global concern. In general, the empirical research has found that during the period starting after World War II and extending through the 1970s, oil price shifts had a very large impact on economic activities. When data from the 1980s was added to the sample period, estimates of the oil price elasticity fell sharply. In fact, during the mid-1980s the structural relationship appeared to change and researchers began to entertain the possibility that oil prices had an asymmetric impact on economic activities. Oil price increases continued to have a negative (though smaller) impact on economic activities, however, large oil price declines failed to produce an economic boom. Research conducted over the decade of 1990s notes that oil prices have become more volatile while the impact on the economy appears to have continued to diminish. These researchers have concluded that the central bank response to oil price shocks has fundamentally changed over the years and that this shift has mitigated much of the negative impacts on real GDP and contributed to the reduction in the oil price elasticity. In this study, we re-examine the co-movement and the causality relationship between international oil price fluctuations and growth rates in India. It also aims at examining the role of Reserve Bank of India in controlling the impact of oil price shocks on economic activities in India.

 

Keywords : Crude oil price fluctuations, Oil price elasticity, Central Bank response, Soaring growth rates, Economies

 

 

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