Volatility transmissions between shocks to the oil price and inflation: evidence from a bivariate GARCH approach

Lu, Wen‐Cheng; Liu, Ting-Kun; Tseng, Chia-Yu

doi:10.1080/02522667.2010.10700003

Cited by 13 publications

(12 citation statements)

References 14 publications

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“…increase in inflation is a result of oil price. This finding complies with several studies (Lu et al, 2010;Valcarcel & Wohar, 2013). These findings provide supportive evidence for the wavelet coherence result.…”

Section: Time-domain Causalitysupporting

confidence: 92%

“…The rightward and up arrows provide supportive evidence for causality running from oil price to inflation. This shows that oil price is a good predictor of inflation (Lu et al, 2010;Mukhtarov et al, 2020)…”

Section: Wavelet Coherence Resultsmentioning

confidence: 84%

“…Therefore, leading to mixed findings from various investigators. In a study carried out in Taiwan by Lu, Liu, and Tseng (2010) on the nexus between volatility in oil price and inflation, using conducted by Gao, Kim, and Saba (2014) on the United States pertaining to the influence of oil price on inflation using monthly data stretching between 1974 and 2014. The author utilized the Bivariate VAR to ascertain this influence.…”

Section: Synopsis Of Studiesmentioning

confidence: 99%

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Dynamic Relationship between Oil Price and Inflation in Oil Exporting Economy: Empirical Evidence from Wavelet Coherence Technique

Adebayo

2020

Energy Economics Letters

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This paper examined the co-movement and causality between oil price and inflation using monthly data spanning between January 2007 and March 2020. The study employed the wavelet coherence techniques which are a new technique in economics and finance to verify the co-movement and causality simultaneously. Additionally, Granger and Toda Yamamoto's causality tests were deployed as a robustness check for the wavelet coherence techniques. Findings from the wavelet coherence technique reveal; (a) positive co-movement between the inflation and oil price between 2014M2 and 2017M1 at scale 4-8; (b) there is evidence of causality from oil price to inflation. Wavelet coherence technique revealed unidirectional causality running from oil price to inflation which is also confirmed by the Granger and Toda Yamamoto causality tests. To the author's understanding, no studies concerning oil price and inflation nexus in the case of Nigeria have deployed this technique. Based on these findings, recommendations were put forward. Contribution/ Originality:The uniqueness of this study from past studies that examined this nexus stem from utilizing current methodology crafted from physics and engineering known as wavelet coherence technique. This approach has been utilized recently in econophysics to explore the co-movement and causality between economic and financial variables.

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Section: Time-domain Causalitysupporting

confidence: 92%

Section: Wavelet Coherence Resultsmentioning

confidence: 84%

Section: Synopsis Of Studiesmentioning

confidence: 99%

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Dynamic Relationship between Oil Price and Inflation in Oil Exporting Economy: Empirical Evidence from Wavelet Coherence Technique

Adebayo

2020

Energy Economics Letters

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“…That notwithstanding, the rise and decline in crude oil prices during the periods of inflation in 1970 and 1980 were quickly adjusted. However, more recently, there has been little evidence to suggest that changes in crude oil price influence inflation [3].…”

Section: Introductionmentioning

confidence: 99%

Asymmetric Impacts of Oil Price on Inflation: An Empirical Study of African OPEC Member Countries

Bala

Lee

2018

Energies

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This study investigates the asymmetric impacts of oil price changes on inflation in Algeria, Angola, Libya, and Nigeria. Three different kinds of oil price data were applied in this study: the actual spot oil price of individual countries, the OPEC reference basket oil price, and an average of the Brent, WTI, and Dubai oil price. Autoregressive distributed lag (ARDL) dynamic panels were used to estimate the short- and long-term impacts. Also, we partitioned the oil price into positive and negative changes to capture asymmetric impacts and found that both the positive and negative oil price changes positively influenced inflation. However, the impact was found to be more significant when the oil prices dropped. We also found that the money supply, the exchange rate, and the gross domestic product (GDP) are positively related to inflation, while food production is negatively related to inflation. Accordingly, policy-makers should be cautious when formulating policies between the positive and negative changes in oil prices, as it was shown that inflation increased when the oil price dropped. Additionally, the use of a contractionary monetary policy would help to reduce the inflation rate. Lastly, we suggest that the government should encourage domestic food production, both in quantity and quality, to reduce inflation.

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“…However, more recently, little evidence has shown that changes in crude oil price influence inflation. This may be because many past studies employed linear time series methods suggesting that fluctuations or changes in oil prices may have a non-linear impact on inflation [3].…”

Section: Introductionmentioning

confidence: 99%

Asymmetric Impacts of Oil Price on Inflation: An Empirical Study of African OPEC Member Countries

Bala¹,

Lee²

2018

Preprint

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This study investigates the asymmetric impacts of oil price changes on inflation in Algeria, Angola, Libya and Nigeria. Three different oil price data were applied in this study; the specific spot oil price of individual countries, the OPEC reference basket oil price and an average of the Brent, WTI and Dubai oil price. The dynamic panels ARDL were used to estimate the short and the long-run impacts. Also, this study partitioned the oil price into positive and negative changes to capture asymmetric impacts and found both positive and negative oil price changes positively influenced inflation. However, the impact was found to be more significant when oil prices dropped. The results from the study also found that money supply, the exchange rate and GDP are positively related to inflation while food production is negatively related to inflation. Accordingly, policymakers should be cautious in formulating policies between the positive and negative changes in oil prices as it was shown that inflation increased when the oil price dropped. Additionally, the use of contractionary monetary policy would help to reduce the inflation rate, and lastly, it is proposed that the government should encourage domestic food production both in quantity and quality to reduce inflation.

show abstract

Volatility transmissions between shocks to the oil price and inflation: evidence from a bivariate GARCH approach

Cited by 13 publications

References 14 publications

Dynamic Relationship between Oil Price and Inflation in Oil Exporting Economy: Empirical Evidence from Wavelet Coherence Technique

Dynamic Relationship between Oil Price and Inflation in Oil Exporting Economy: Empirical Evidence from Wavelet Coherence Technique

Asymmetric Impacts of Oil Price on Inflation: An Empirical Study of African OPEC Member Countries

Asymmetric Impacts of Oil Price on Inflation: An Empirical Study of African OPEC Member Countries

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