Do oil prices have an asymmetric impact on economic output in India? Empirical evidence using asymmetric cointegration approach

Abstract

AbstractThis study examines the nexus between oil prices (Oil) and economic output (IIP) asymmetrically in the Indian context using quarterly data from 1996–1997:Q1 to 2019–2020:Q4. To this end, we have used a nonlinear autoregressive distributed lag (NARDL) model. The main findings of the study are as follows—firstly, the Wald test confirms the nonlinearities among the negative and positive shocks in Oil, EX and IR in the long run. Secondly, the NARDL model reveals that negative shock in oil price stimulate the IIP, whereas positive shock in Oil fails to influence IIP. The positive shock in EX strengthens the Indian economy by having a positive and significant impact on IIP, while the negative shock in EX is insignificant. The positive and negative shocks in IR negatively impact IIP in the long run. The study demonstrates that Oil, EX and IR exert asymmetric pressure on IIP in the long run. Concisely, India's economic output is more responsive to oil prices decrease than oil prices increase. Therefore, the asymmetric oil prices‐economic output nexus has substantial policy implications, particularly for prudent energy policy in India.