Inflation target and (a)symmetries in the oil price pass-through to inflation

López-Villavicencio, Antonia; Pourroy, Marc

doi:10.1016/j.eneco.2019.01.025

Cited by 51 publications

(7 citation statements)

References 28 publications

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“…This breakdown will help test the presence of asymmetry in the effect of price pass-through to inflation in accordance with the ideas laid down in López-Villavicencio and Pourroy (2019). This asymmetry was first discovered in Bacon (1991), which analyzed the U.S. petroleum market.…”

Section: Modeling Resultssupporting

confidence: 63%

“…Oil price fluctuations may have a substantial impact on inflation. There are two channels for this impact identified in the literature: a direct channel, associated with changes in firms' costs caused by the appreciation (or cheapening) of energy resources, and an indirect channel, the effect of which is determined by the foreign exchange rate pass-through in response to increasing or decreasing oil prices (see, e.g., López-Villavicencio and Pourroy, 2019). The latter channel may operate asymmetrically for countries that export and import energy resources.…”

Section: Introductionmentioning

confidence: 99%

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Monetary policy and the effect of the oil prices pass-through to inflation

Kartaev¹,

Medvedev²

2019

RUJEC

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The paper examines the impact of oil price shocks on inflation, as well as the impact of the choice of the monetary policy regime on the strength of this influence. We used dynamic models on panel data for the countries of the world for 2000–2017. It is shown that the impact of changes in oil prices on inflation is carried out predominantly through the channel of exchange rate. The paper demonstrates the influence of the transition to inflation targeting on the nature of the relationship between oil price shocks and inflation. This effect is asymmetrical: during periods of rising oil prices, inflation targeting reduces the effect of the oil prices pass-through, limiting the negative effects of shock. During periods of decline in oil prices, this monetary policy regime, in contrast, contributes to a stronger pass-through, helping to reduce inflation.

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Section: Modeling Resultssupporting

confidence: 63%

Section: Introductionmentioning

confidence: 99%

Monetary policy and the effect of the oil prices pass-through to inflation

Kartaev¹,

Medvedev²

2019

RUJEC

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“…There is a large body of literature examining the asymmetric response of decreases and increases in the cost of crude oil, although the results are not uniform. Borenstein et al (1997), Balke et al (1998, together with Al-Gudhea et al (2007) and Blair et al (2017) for the U.S., Bacon (1991) for the U.K., and Grasso and Manera (2007) for France, Germany, Italy, Spain and the U.K. find relatively favorable evidence for the existence of the asymmetry (see also Kpodar and Abdallah, 2017), while Norman andShin (1991), Bachmeier andGriffin (2003) for the U.S. and Godby et al (2000) for Canada report a symmetric response of retail gasoline prices to world crude oil price changes (see also López-Villavicencio and Pourroy, 2019). In his well-designed metaanalysis, Perdiguero-Garcia (2013) illustrates that the conflicting results reported in empirical studies may be due to various factors ranging from the estimation method used to the timefrequency of data.…”

Section: A Literature Review: What Explains Differences In Pass-throughmentioning

confidence: 99%

To Pass (or Not to Pass) Through International Fuel Price Changes to Domestic Fuel Prices in Developing Countries

Kpodar¹,

Imam²

2020

IMF Working Papers

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While many developing countries limit the international fuel price pass through to domestic fuel prices, others do not. Against this backdrop, we examine the factors that determine whether governments allow international fuel price changes to be passed through to domestic prices in developing countries using a dataset spanning 109 developing countries from 2000 to 2014. The paper finds that the pass-through is higher when changes in international prices are moderate and less volatile. In addition, the flexibility of the pricing mechanism allows for higher pass-through while exchange rate depreciation and lower retail fuel prices in neighboring countries inhibit it. The econometric results also underscore the fact that countries with inflation tend to experience lower pass-through, whereas those with high public debt exhibit larger pass-through. Finally, no evidence is found that political variables or environmental policies matter with regard to fuel price dynamics in the short-term. These findings, which are consistent across fuel products (gasoline, diesel and kerosene), allow us to draw important policy lessons for fuel subsidy reforms.

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“…Numerous studies have explored the impact of oil price changes on the inflation rate for a group of countries [4,[28][29][30][31][32][33][34]. According to Živkov et al (2018) [28], the inflationary effects of oil price rises are stronger in the long term for Central and Eastern European Countries.…”

Section: Literature Reviewmentioning

confidence: 99%

How Oil Price Changes Affect Inflation in an Oil-Exporting Country: Evidence from Azerbaijan

2023

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This research study aims to explore the inflationary effects of oil price rises in the case of Azerbaijan. The study covers 1997–2021 yearly data to estimate long- and short-term impacts while considering “oil price—money supply” interactions. Autoregressive Distributed Lag Bounds testing (ARDLBT), Fully Modified Ordinary Least Squares (FMOLS), and Canonical Cointegration Regression (CCR) cointegration methods are applied simultaneously. The research findings are: (1) oil price is a significant long-term determinant of inflation in Azerbaijan, affecting overall prices directly and indirectly via the money supply; (2) the effect is statistically significant in the short-term and happens indirectly, moderated by the money supply; and (3) oil price moderates the impact of the money supply over inflation in the short-term. A major limitation of the current study is that it omits the possible moderation impact of oil prices over inflation in Azerbaijan through the resulting inflationary pressure due to oil price rises in trade-partner countries and the government’s fiscal policy. Research findings require the Central Bank to consider indirect effects of oil price changes, especially due to money supply changes, when targeting inflation and addressing policy sustainability in Azerbaijan.

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Inflation target and (a)symmetries in the oil price pass-through to inflation

Cited by 51 publications

References 28 publications

Monetary policy and the effect of the oil prices pass-through to inflation

Monetary policy and the effect of the oil prices pass-through to inflation

To Pass (or Not to Pass) Through International Fuel Price Changes to Domestic Fuel Prices in Developing Countries

How Oil Price Changes Affect Inflation in an Oil-Exporting Country: Evidence from Azerbaijan

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