How Large and Persistent is the Response of Inflation to Changes in Retail Energy Prices?

Author/Editor:

Chadi Abdallah ; Kangni R Kpodar

Publication Date:

June 12, 2020

Electronic Access:

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Summary:

We estimate the dynamic effects of changes in retail energy prices on inflation using a novel monthly database, covering 110 countries over 2000:M1 to 2016:M6. We find that (i) inflation responds positively to retail energy price shocks, with effects being, on average, modest and transitory. However, our results suggest significant heterogeneity in the response of inflation to these shocks owing to differences in factors related to labor market flexibility, energy intensity, and monetary policy credibility. We also find compelling evidence of asymmetric effects—under sufficiently large shocks—in the case of high-income and low-income countries, with increases in retail fuel prices inducing larger effects on inflation than decreases in fuel prices.

Series:

Working Paper No. 20/93

Subject:

English

Publication Date:

June 12, 2020

ISBN/ISSN:

9781513546094/1018-5941

Stock No:

WPIEA2020093

Format:

Paper

Pages:

31

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