Oil prices and inflation dynamics: Evidence from advanced and developing economies

Sangyup Choi, Davide Furceri, Prakash Loungani, Saurabh Mishra, Marcos Poplawski-Ribeiro

Research output: Contribution to journalArticle

17 Citations (Scopus)

Abstract

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% increase in global oil inflation increases, on average, domestic inflation by about 0.4 percentage points 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 more credible monetary policy and less reliance on energy imports. 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 period.

Original languageEnglish
Pages (from-to)71-96
Number of pages26
JournalJournal of International Money and Finance
Volume82
DOIs
Publication statusPublished - 2018 Apr 1

Fingerprint

Price dynamics
Developing economies
Inflation dynamics
Oil prices
Oil price shocks
Inflation
Energy
Oil
Subsidies
Fluctuations
Transmission channel
Unbalanced panels
Import
Monetary policy
Factors

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

Choi, Sangyup ; Furceri, Davide ; Loungani, Prakash ; Mishra, Saurabh ; Poplawski-Ribeiro, Marcos. / Oil prices and inflation dynamics : Evidence from advanced and developing economies. In: Journal of International Money and Finance. 2018 ; Vol. 82. pp. 71-96.
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Oil prices and inflation dynamics : Evidence from advanced and developing economies. / Choi, Sangyup; Furceri, Davide; Loungani, Prakash; Mishra, Saurabh; Poplawski-Ribeiro, Marcos.

In: Journal of International Money and Finance, Vol. 82, 01.04.2018, p. 71-96.

Research output: Contribution to journalArticle

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