Asymmetric and nonlinear pass-through of global crude oil price to China’s PPI and CPI inflation

Abstract

With China's expanding import demand of crude oil and the gradually relaxing regulation of domestic oil prices, the global oil price is likely to affect China's price level more closely. Based on an augmented Phillips curve framework, this article employs both the autoregressive distribution lag (ARDL) and nonlinear and asymmetric autoregressive distribution lag (NARDL) model to investigate pass-through effects of crude oil price on China's producer prices index (PPI) and consumer prices index (CPI) in China. It is found that the impact of global oil price fluctuations to China's PPI and CPI are asymmetrical in the longrun, and the long-term impacts of the rise in global oil prices on PPI and CPI are greater than the global oil price decline on PPI and CPI. However, the symmetric ARDL model fails to diagnose the impact of oil price to China's PPI and CPI. Therefore, it is necessary to consider asymmetric relationship in the study of global oil price's influence on China's domestic prices.

Empirical Investigation of Relationship Between Oil Price and Inflation: The Case of India

“…Mineral oil being an important input, any increase in its price leads to higher cost of production and hence higher price and lower output (Kang and Ratti, 2013a;Du and He, 2015). Long and Liang (2018) in his study did not find any association of oil price with non-oil price. There are other studies also which inspect the connection between oil price and non-oil price.…”

Asymmetric and Nonlinear Pass-Through of Global Crude Oil Price to Inflation in Turkey

“…Phillips eğrisi enflasyon ve çıktı açığı arasındaki ilişkiyi incelemekte kullanılan en yaygın araçtır. Birçok akademik çalışmada Phillips eğrisine petrol fiyatları da dahil edilerek petrol fiyatlarının enflasyon üzerindeki etkileri incelenmiştir (Long & Liang, 2018;Chen, 2009;Choi, Furceri, Loungani, Mishra, & Poplawski-Ribeiro, 2017;Conflitti & Luciani, 2017;Dedeoǧlu & Kaya, 2014;Öztürkler, Demir, & Yılmaz, 2015). Bu çalışmada dünya petrol fiyatlarının Türkiye'de üretici fiyatları (PPI) ve tüketici fiyatları (CPI) üzerindeki asimetrik etkileri Genişletilmiş Phillips eğrisi çerçevesinde incelenecektir.…”

Oil Price Pass-Through Into Consumer and Producer Prices With Monetary Policy in China: Are There Non-linear and Mediating Effects

“…Pass-through effects are primarily a problem caused by a nonlinear relationship between oil prices and consumer/producer prices. Extensive studies have employed data showing the nonlinear responses of consumer and producer prices to oil price increases and decreases (Ozdemir and Akgul, 2015;Yalcin et al, 2015;Guo et al, 2016;Ahmed et al, 2017;Sek, 2017Sek, , 2019Long and Liang, 2018;Tiwari et al, 2019). It is widely accepted that non-linear relationships provide crucial information about the stabilizing effect of energy policies and the response of prices to positive and negative shocks; for instance, Myers et al (2018) conducted a permanent-transitory decomposition to examine long-term and short-term relationships between oil prices, producer prices, and consumer prices.…”

“…As mentioned above, large-scale studies have provided feasible evidence for the asymmetric relationships between oil prices and consumer/producer prices, but one issue that remains unsolved is the non-linear nature of these relationships. It is well-known that oil dependency factors, such as refined oil prices, production costs, and the demand for refined oil products, may create nonlinear price transmissions (Ozdemir and Akgul, 2015;Long and Liang, 2018;Ji et al, 2019d;Song et al, 2019;Tiwari et al, 2019). In this vein, this study explored the question of whether oil prices exert non-linear effects on consumer and producer prices, with the aim of providing a richer framework for identifying how authorities should respond to oil price shocks.…”