Second-Round Effects of Oil Price Shocks -- Implications for Europe’s Inflation Outlook
IMF Working Papers, September 9, 2022
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- Second-Round Effects of Oil Price Shocks -- Implications for Europe’s Inflation Outlook
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Bibliographic details
- Authors: Chikako Baba, Jaewoo Lee
- Published: September 9, 2022
- Series: IMF Working Papers
Summary findings
- The pass-through effects of oil price shocks on wage and consumer price inflation vary with the states or structural characteristics of an economy.
- The effects have declined over time in Europe.
- The effects have been higher in emerging European economies than in advanced economies.
- The pass-through to wages is found to have been higher when the prevailing level of inflation was higher.
- The pass-through to wages is found to have been higher when the degrees of unionization and centralized bargaining were higher.
- The pass-through to wages is found to have been lower under a higher credibility of monetary policy.
- The effects of oil price shocks on core inflation and inflation expectations are consistent with their effects on wages.
Key statistics and identifiers
- Authors: Chikako Baba, Jaewoo Lee
- Publication date: September 9, 2022
- Pages: 40
- Working Paper No.: 2022/173
- ISBN: 9798400219351
- ISSN: 1018-5941
- Keywords: impulse response., inflation, monetary policy, oil prices, pass-through, Second-round effects, wages
Policy-relevant implications
- Monetary policy credibility matters: higher credibility is associated with lower wage pass-through from oil price shocks.
- Labor market structure matters: greater unionization and centralized bargaining are associated with higher wage pass-through.
- Inflation environment matters: higher prevailing inflation is associated with stronger wage pass-through.
- Differentiated country responses: emerging European economies exhibit higher pass-through effects than advanced European economies, suggesting the need for tailored policy responses across country groups.
Source: IMF Working Paper No. 2022/173, "Second-Round Effects of Oil Price Shocks -- Implications for Europe’s Inflation Outlook" by Chikako Baba and Jaewoo Lee, September 9, 2022.
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