Abstract
The dynamics of oil prices is one of the most intriguing economic phenomena that are the subject of numerous pieces of research. Fluctuations in global crude oil prices influence the economy and fuel geo-political and economic tensions across the world. OPEC is the largest supplier of crude oil to nation-states and plays a significant role in controlling these prices. How these prices directly affect India's domestic economy functioning is the main objective of this study. Variables included are Gross Domestic Product, CPI (2015=100) as a measure of the price level, total manufacturing in India, and export of goods and credit included under the current account of the balance of payments. An attempt has been made to study how global crude oil prices set by the OPEC impact these variables in a time series analysis using the Granger causality test and vector auto-regression models. We conclude with favorable results, showing both the short-run and long-run impact of global crude oil prices on these macroeconomic variables.
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