Oil price shocks and their impact on the Indian economy: evidence from sign restricted SVAR model

In this paper, ‘a sign restricted Structural Vector Autoregression’ (SVAR) model has been employed to understand the macroeconomic impact of oil shocks on the Indian economy. Following the identification procedure of Baumister et al. (2010), three types of shocks have been identified using sign restrictions, namely, an oil supply shock, oil demand shock created by global economic activity, and oil-specific demand shock. The results based on quarterly data from 1996 Q1 to 2013 Q4 indicate that output growth and inflation in the Indian economy react very differently to different shocks in oil prices.