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Oil Prices and Inflation Dynamics: Evidence from Advanced and Developing Economies
Author:
Sangyup Choinull

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Davide Furcerinull

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Mr. Prakash Loungani
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Mr. Saurabh Mishranull

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Mr. Marcos Poplawski Ribeiro
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https://orcid.org/0000-0003-0998-7238
Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 196
Language:
English
Publication Date:
05 Sep 2017
DOI:
https://doi.org/10.5089/9781484316658.001
ISBN:
9781484316658
ISSN:
1018-5941
Pages:
55
Keywords:
WP; oil price shock; oil price shocks; inflation pass-through; monetary policy; local projections; oil inflation; inflation expectation; interaction terms; pre-existing inflation level; energy price change; inflation surprise; wage-price spiral; CPI basket; inflation dynamics; Oil prices; Inflation; Oil; Consumer price indexes; Inflation targeting; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We study the impact of fluctuations in global oil prices on domestic inflation using an unbalanced panel of 72 advanced and developing economies over the period from 1970 to 2015. We find that a 10 percent increase in global oil inflation increases, on average, domestic inflation by about 0.4 percentage point on impact, with the effect vanishing after two years and being similar between advanced and developing economies. We also find that the effect is asymmetric, with positive oil price shocks having a larger effect than negative ones. The impact of oil price shocks, however, has declined over time due in large part to a better conduct of monetary policy. We further examine the transmission channels of oil price shocks on domestic inflation during the recent decades, by making use of a monthly dataset from 2000 to 2015. The results suggest that the share of transport in the CPI basket and energy subsidies are the most robust factors in explaining cross-country variations in the effects of oil price shocks during the this period.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2017: Issue 196