Oil Price Pass-Through into Core Inflation
43 Pages Posted: 5 Dec 2017
Date Written: November 29, 2017
This work estimates the effect that fluctuations in oil prices have on changes in consumer prices in both the United States and the euro area. For many of the basic items in the basket of goods used to estimate inflation, the effects of oil price trends are divided into two components: the first is linked to the specific characteristics of individual products (such as, for example, the importance of energy in the production process), while the second is related to macroeconomic factors which are in turn connected with changes in oil prices. The results show that changes in oil prices mainly pass through to core inflation (or rather to inflation excluding food and energy products) by means of macroeconomic factors; while the effect is limited, it is statistically different from zero and persists over time.
Keywords: Core inflation, oil price, dynamic factor model, pass-through, disaggregate consumer prices
JEL Classification: C32, E31, E32, Q43
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