Through a Glass Darkly: Deciphering the Impact of Oil Price Shocks
Published By: IGIDR on eSS | Published Date: December, 05 , 2006In 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.
Author(s): Ashima Goyal | Posted on: Jan 05, 2009 | Views(2126) | Download (1018)