Oil Prices and Inflation Dynamics: Evidence from Advanced and Developing Economies
The impact of fluctuations in global oil prices on domestic inflation using data on 72 advanced and developing economies 1970-2015
Abstract
The authors 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. They 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. They 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. They 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.
This work is part of the ‘Macroeconomics in Low-income countries’ programme
Citation
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Sangyup Choi, Davide Furceri, Prakash Loungani, Saurabh Mishra, Marcos Poplawski-Ribeiro (2017) Oil Prices and Inflation Dynamics: Evidence from Advanced and Developing Economies. IMF Working Paper No. 17/196
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Sangyup Choi, Davide Furceri, Prakash Loungani, Saurabh Mishra, Marcos Poplawski-Ribeiro, Oil prices and inflation dynamics: Evidence from advanced and developing economies, Journal of International Money and Finance, Volume 82,2018,Pages 71-96, https://doi.org/10.1016/j.jimonfin.2017.12.004.