Causality among Inflation, Foreign Direct Investment, Trade and Money Supply on Crude Oil Prices: The Case Study of India

Abstract

Despite the continued decline in global oil intensity, the price of oil remains critical to the health of an economy. Moreover, developments in the oil sector continue to have a major impact on the direction of world politics and economics. As crude oil is the most important source of energy for the global economy, it is essential for economic expansion. Supply and demand effectively determine the price of crude oil on the world market. The performance of the world economy as a whole, as well as that of the largest economies such asthe U.S., Japan, and more recently China, has a major impact on the demand for crude oil. Theglobal economy is growing along with global oil demand, and there is a close link between these two variables. Supply essentially determines how high the price of crude oil is. According to many experts, no other economic event in the post-war period II has caused as much concern as the series of oil price shocks, mostly caused by OPEC countries. The obvious correlation between oil prices and major economic indices can be seen even without studies. However, since this problem was new, scholars asked questions about the numerical impact ofoil shocks and their relationship with government policies in order to predict the best way to deal with the negative impact of rising oil prices. Since then, a substantial number of studies have found a link between rising oil prices and subsequent economic downturns. This research is quantitative and analytical. Data analysis primarily uses statistical and econometric techniques (deductive process) to determine whether the dependent and independent variables are correlated. Granger's causality tests are then used to determine the empirical relationships between the variables. The analysis uses the Augmented Dickey-Fuller Test, Phillips Perron test, GLS testing, Johnson Cointegration and Auto Regressive Distributive Lag. The study objectives were to find out impact of consumer price index, foreign direct investment, trade and money supply impact on crude oil prices. Apart from Indian trade all other variables were accepted