Title: Oil price shocks, inflation and policy response: the emerging market experience

Authors: T.G. Saji

Addresses: School of Business Studies, Central University of Kerala, Kasaragod, India

Abstract: This research empirically examines the monetary policy responses towards the oil price pass-through to inflation dynamics in an emerging market like India during the period 2006-2017. Our results, based on vector auto-regressive (VAR) estimation, find low and insignificant crude price transmission to domestic fuel prices due to weighted tax content in the retail prices. The propagation effect of the fuel price hike to headline inflation is dismal or at minimum. The study observes weak causality from monitory policy to headline inflation, while the reverse relationship is found substantial and significant. The findings ultimately suggest the continued adherence to the present rule-based monetary policy framework of pegging policy rates to inflationary expectations in India enables the Monetary Policy Committee (MPC) to recognise the short-term trade-off between inflation and growth, while allows it to stabilise prices in the long-run and across different economic cycles.

Keywords: oil price shocks; headline inflation; monetary policy; inflation targeting.

DOI: 10.1504/IJEPEE.2024.141564

International Journal of Economic Policy in Emerging Economies, 2024 Vol.20 No.2, pp.161 - 177

Received: 15 Jan 2020
Accepted: 23 Aug 2020
Published online: 24 Sep 2024 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article