Oil Price Shocks Pass-through Into Inflation in Algeria: assessing the relative importance of the transmission channels using structural Var-x (original) (raw)
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Oil Price Pass-Through into Inflation: The Evidence from Oil Exporting Countries
2016
This paper evaluates different channels of oil price pass through into inflation for the countries Azerbaijan, Kazakhstan and Russia. We propose a methodology to disentangle the effects of different channels after an oil price shock hits international markets. We measure the relative importance of the two distinct channels through which oil price shocks are transmitted into inflation in these economies. For that, we employ an approach which is in the spirit of the methodology proposed by Sims and Zha (1995). The empirical evidence shows that the level of inflation in these oil-exporting countries responds significantly to oil price shocks. The fiscal and cost channels are major amplifiers of the effects of oil price shocks on inflation. By providing new evidence from emerging oil-exporting countries, the paper also has important policy implications on the maintenance of price stability by central banks.
2016
In this paper, we attempt to analyze, during the period spanning from January 2000 to July 2015, the impact of oil price shocks on inflation and the real exchange rate in a six of oil importers and exporters MENA countries: Tunisia, Morocco, Algeria, Bahrain, Saudi Arabia and Iran (MENA-6) using a Structural VAR model. The impulse response functions reveal that, in the long run, oil price fluctuations have the major impact on real exchange rate of the oil-importing countries (Tunisia and Morocco) while the impact on inflation is smaller and absorbed by the rigidity of subsidized products prices. The variance decomposition results also assert that oil price shocks do not explain notably the variation in the two considered variables in Algeria and Iran. We further identify an impact on the two variables that is both statistically significant and economically large in the rest of countries.
Monetary policy and the effect of the oil prices pass-through to inflation
Russian Journal of Economics, 2019
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.
The impact of fluctuating oil prices on inflation in Algeria
2014
As Algeria is an oil-rich country having its revenues entirely linked to hydrocarbon exports, tensions in the oil market might engender risks of macroeconomic imbalances. Bearing in mind the importance of oil for the world economy and its fallout during a prolonged surge of its prices, it would be interesting to investigate the relationship inflation-oil prices, which is a point of contrast among economists. At first, we will display theoretical background of inflation and the inflation patterns in Algeria, before putting evidence of strategic issues of the oil revenues in Algeria. We will finish by an econometric analysis via a VAR model of the eventual relationship between oil prices and inflation in Algeria. This article aims to answer the question: “What’s the impact of oil price fluctuations on inflation in Algeria? I. INTRODUCTION In a world full of problems, wars and crises; oil is ranked among all-economies as of paramount importance. Its nickname “black gold” suffices to hi...
Oil Price Pass-through on Domestic Inflation: Oil Importing Versus Oil Exporting Countries
Journal of Reviews on Global Economics, 2019
Previous studies have evident the effects of oil price changes on domestic inflation. However, such effects may vary due to oil dependency factor. This paper extends the examination on two panel groups, namely the oil importing and oil exporting countries. Each group consists of ten countries. Besides, we also compare the relative effects of oil price with other shocks (domestic output, exporter’s production cost and real exchange rate) on domestic inflation (consumer price and producer price). Our results capture significant pass-through effect from oil price changes on domestic inflation at producer and consumer levels. However, oil price is not the main determinant to domestic inflation. The oil price pass-through effect differs between oil importing versus oil exporting groups across consumer and producer levels. Higher oil price causes to higher production price inflation but does not lead to higher consumer price inflation in both groups of countries. The oil price effect together with exchange rate, foreign cost production and GDP have significant long-run impact on domestic inflation in both groups of countries. The joint effects are small and not significant in the short-run. Oil dependency and effective monetary policy matter on determining the effect of oil price changes on domestic inflation.
Another Pass-Through Bites the Dust? Oil Prices and Inflation
2007
This paper presents evidence of an important decline during recent decades in the pass-through from the price of oil to the general price level. We find that this decline is a generalized fact for a large set of countries. After documenting correlations between the consumer price index and oil prices, we use two estimation strategies in an attempt to properly identify the effect of oil shocks on inflation. First, we estimate the traditional Phillips curve augmented to include oil and test for structural breaks in 34 countries. This methodology shows a fall in the average estimated pass-through for industrial economies and, to a lesser degree, for emerging economies. Second, we estimate rolling vector autoregressions for a subsample of countries for which we have sufficient data. We derive impulse response functions of inflation to oil shocks and interpret the integrals as estimates of pass-through. We find that the effect of oil shocks on inflation has weakened for most of the 12 countries in the sample. Among the factors that might help to explain this decline, we argue that the most important are a reduction in the oil intensity of economies around the world, a reduction in the exchange rate pass-through, a more favorable inflation environment, and the fact that the current oil price shock is largely the result of strong world demand. These factors help to explain not only why the current shock has had limited inflationary effects, but also why it has had limited consequences for output.
Oil Prices and Inflation Dynamics
IMF Working Papers
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 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. 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 better conduct of monetary policy. 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 eff...
Inflation Expectations and the Pass-Through of Oil Prices
The Review of Economics and Statistics, 2021
Inflation expectations and the associated pass-through of oil price shocks depend on demand and supply conditions underlying the global oil market. We establish this result using a structural VAR model of the global oil market that jointly identifies transmissions of oil demand and supply shocks through real oil prices to both expected and actual inflation. We demonstrate that economic activity shocks have a significantly longer lasting effect on inflation expectations and actual inflation than other types of real oil price shocks, and resolve disagreements around the role of oil prices in explaining the missing deflation puzzle of the Great Recession.
Iranian Economic Review, 2021
Using Nigeria as a case study, this study shows that changes in oil price is central to the monetary transmission mechanism in oil-producing countries; a phenomenon which can be described as petromonetary transmission mechanism. Using a Markov state-switching model, this study shows that there are high and low inflation regimes in the Nigerian economy. Oil price has significant impacts on inflation in the two regimes. Among the common coefficients, exchange rate and credit have significant effects. The empirical evidence from the impulse response functions of the VAR model shows that a one standard deviation shock to credit, interest rate, exchange rate, and oil price generates sharp increases in CPI, thus establishing a petro-monetary transmission mechanism in Nigeria. This study therefore establishes the presence of petro-monetary transmission mechanism in oil-producing countries. The central banks in these countries should therefore consider the oil price channel in the conduct of monetary policy.
How Oil Prices Drive Inflation in Turkish Economy: Two Different Channels
Fiscaoeconomia, 2020
This study analyzes the impact of changes in oil prices on consumer inflation in Turkey. We compare the effects of the changes in crude oil and gasoline prices on the consumer prices. These effects differ symmetrically and asymmetrically for the period 2009:01-2020:04. For this purpose, inflationary effects are estimated using linear and nonlinear ARDL models. According to the findings, changes in both oil and fuel prices have asymmetric effects on inflation in the short run. Both models explain the changes in consumer inflation with the increases in oil prices in the long run. The result indicates that the decreases in oil prices are not taken into account in pricing decisions.