gender differential paper IJCRB

ijcrb.webs.com
JUNE 2011
INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS VOL 3, NO 2
the dependent variables, the F-statistics is very low and also the adjusted R-square is close to
zero. So, again it is proved, the unidirectional causality runs from the positive and negative oil
price to the industrial production and the reverse case is insignificant.
5.3.1 Impulse Response Function
The figure 3 shows the responses of industrial production to the negative and positive oil price
shocks. The first part shows the response to the positive oil price shocks. For the first two
periods after the initial positive oil shock the industrial production decreases with the increase in
oil price and then it increases till the third period after the shock. After the third period it again
declines and reaches its minimum in the fifth period. In the sixth and seventh period the response
is a bit increase and then decreased again. Thus going through a number of oscillations the
industrial production converges to its initial level at almost 39 th period after the shock. Again the
impulse response function time path is damped. Since the horizontal line is not touched by the
confidence bands therefore we conclude that the response of industrial production to the positive
oil shock is insignificant.
In the second part of the figure the response of industrial production to the negative oil
shocks is shown. After the initial negative oil shock the industrial production increases for the
first two periods and then decreases for the third period. From third to eighth period after the
negative shock the industrial production increases with the decrease in oil price. Then after some
oscillations it converges to the initial level at 32 nd period. Because the horizontal line is not
touched by the confidence bands therefore we conclude that the response of industrial production
to the negative oil price shock is insignificant. Since the response of the industrial production to
both the negative and positive oil price is insignificant, therefore it is concluded that the
relationship between the oil price and industrial production is linear or symmetric.
[Insert Figure 3 about here.]
5.3.2 Variance Decomposition
The Impulse Response Function gives us a qualitative response of the industrial production to
the shocks in the oil prices. Thus the forecast error variance decomposition is examined to
determine the share of proportion of movements in the series of industrial production that are
due to the shocks in their own series as oppose to the negative and positive shocks in oil prices.
The table 4 shows the forecast error variance decomposition of the industrial production for 12
months periods. Table shows that at the initial period the share of industrial production explained
by its own lag is 100 percent but at later periods it decreases and reaches to 91 percent and at the
end of 12 th period the share of its own shocks in the variation of industrial production becomes
almost 82 percent. However at the end of the 12 th period almost 9 percent shares in the industrial
production are explained by positive oil shocks and 8 percent is explained by the negative oil
shocks. Since the difference in share of industrial production variations by the positive and
negative oil price shocks are not much, therefore we conclude that the relationship between the
oil price and industrial production is linear and symmetric.
5.4 Forecasting and Forecast Evaluation
The forecast are made using the selected ARIMA and VAR models from Dec 2006 to Sep 2008.
Table 5 shows the actual growth rate of index of industrial production and the forecast made by
ARIMA and VAR models. To assess the forecasting ability of a model we 20 observations at the
end of the sample period are retained and are not used to estimate the models. The sample range
from July 1991 to Sep 2008, but the ARIMA and VAR models are estimated for the period July
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