Crude Oil Prices and Exchange Rate in India: Evidence from Toda and Yamamoto approach
Keywords:
Oil price, exchange rate, causality, Toda and Yamamoto, rupee volatility.Abstract
India is one of the fastest growing
economies with a tremendous increase in
the import of its oil resources. It imports
around 80% of its oil resources which
constitutes a thirdof the total import of the
country. The unfavourable movement of
oil price creates issues like inflation,
economic instability and slumped growth
in the economy. The objective of this
paper is to analyse the dynamic
relationship between oil price fluctuation
and rupee dollar exchange rate by using
daily time series data from 16th February,
2015 to 1st February 2018.To investigate
the causal relationship, the study
employed innovative and advanced
version of Granger non-causality test
proposed by Toda and Yamamoto (1995).
The results of Granger non-causality test
indicate that there is a unidirectional
causality running from oil price to exchange rate, not vice versa. This result is substantiated by the movement of rupee exchange rate during the period of study.
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