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

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  • Ashima Goyal
Abstract
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.

Suggested Citation

  • Ashima Goyal, 2009. "Through a Glass Darkly: Deciphering the Impact of Oil Price Shocks," Working Papers id:1826, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:1826
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    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
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    Cited by:

    1. Ashima Goyal & Sanchit Arora, 2012. "Deriving India's Potential growth from theory and structure," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-018, Indira Gandhi Institute of Development Research, Mumbai, India.

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    More about this item

    Keywords

    VAR; identification strategies; developing economy; residual; output; labor surplus; oil price; economy; vertical; horizontal; VSC; HSC; supply curve; inflation; time series; data; demand; residual; India; Indian;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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