Oil Price Pass-Through into Core Inflation

28 Pages Posted: 7 Sep 2017

See all articles by Cristina Conflitti

Cristina Conflitti

affiliation not provided to SSRN

Matteo Luciani

Board of Governors of the Federal Reserve System

Date Written: 2017-08-17

Abstract

We estimate the oil price pass-through into consumer prices both in the US and in the euro area. In particular, we disentangle the specific effect that an oil price change might have on each disaggregate price, from the effect on all prices that an oil price change might have since it affects the whole economy. To do so, we first estimate a Dynamic Factor Model on a panel of disaggregate price indicators, and then we use VAR techniques to estimate the pass-through. Our results show that the oil price passes through core inflation only via its effect on the whole economy. This pass-through is estimated to be small, but statistically different from zero and long lasting.

Keywords: Core inflation, Disaggregate consumer prices, Dynamic factor model, Oil price, Pass-through

JEL Classification: C32, E31, E32, Q43

Suggested Citation

Conflitti, Cristina and Luciani, Matteo, Oil Price Pass-Through into Core Inflation (2017-08-17). FEDS Working Paper No. 2017-085, Available at SSRN: https://ssrn.com/abstract=3029735 or http://dx.doi.org/10.17016/FEDS.2017.085

Cristina Conflitti (Contact Author)

affiliation not provided to SSRN ( email )

Matteo Luciani

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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