Influence of oil prices on inflation in South Asia: Some new evidence

The study tries to measure the influence of the world oil prices on inflation rates in South Asian countries using monthly data from 1980M1–2018M12. Empirical analysis is carried not only using cointegration and VAR, but also using nonlinear analysis. The estimated results reveal that cointegration holds among oil prices and inflation in South Asian countries. Linear and non-linear causality tests stipulate that oil price Granger causes inflation. The impulse-response functions indicate that global oil prices shock positively affects inflation in South Asian countries and this impact is permanent. The variance decomposition analysis postulates that global oil price shock does not describe any significant changes in inflation rates in short run, but this variation increases in the long run. Non-linear analysis reveals that the effect of global oil price on inflation is asymmetric. The positive oil price shock increases inflation significantly, while the influence of negative oil price shock is not significant.