Does Oil Price Shock influence Inflation in India?
Fluctuation in oil price is criteria in the worldwide economy which is posing a great challenge to researchers and policy makers studying the stochastic nature of macro -economic dynamics. This research endeavour tries to analyze the influence of oil price change either domestic oil price or international oil price on inflation in India for the period from February,1990 to March,2015. The result suggests variables in the series are co integrated and exhibits a stable long-run equilibrium relationship. The granger causality test suggests that since all the null hypotheses are accepted, we do not find any granger causal relationship among variables- inflation, domestic oil price and international oil price - under our study so far as our study period and result are concerned .The findings also suggest that domestic oil price has insignificantly increasing-mean effect and international oil price has significant positive mean effect on inflation. Therefore, changes in international oil prices have more vital effects on the price indices than changes in domestic oil prices in India which supports the similar findings of Wen-Hsiu Huang, Ming-Che Chao,2012.Therefore, monetary measures should also be considered to accommodate inflation induced by oil price shocks in India.
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