## Oil Prices and Inflation Dynamics: Evidence from Advanced and Developing Economies

_IMF Working Papers, September 5, 2017_

## Source details

**Canonical URL:** [Oil Prices and Inflation Dynamics: Evidence from Advanced and Developing Economies](https://www.imf.org/en/publications/wp/issues/2017/09/05/oil-prices-and-inflation-dynamics-evidence-from-advanced-and-developing-economies-45180)

## Other formats

- [Markdown version](/en/publications/wp/issues/2017/09/05/oil-prices-and-inflation-dynamics-evidence-from-advanced-and-developing-economies-45180/index.md)
- [Structured JSON version](/en/publications/wp/issues/2017/09/05/oil-prices-and-inflation-dynamics-evidence-from-advanced-and-developing-economies-45180/index.json)
- [Bundle manifest](/en/publications/wp/issues/2017/09/05/oil-prices-and-inflation-dynamics-evidence-from-advanced-and-developing-economies-45180/bundle-manifest.json)

## Bibliographic details
- Authors: Sangyup Choi, Davide Furceri, Prakash Loungani, Saurabh Mishra, Marcos Poplawski Ribeiro
- Published: September 5, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484316658.001

---

### Key findings
- A 10 percent increase in global oil inflation increases, on average, domestic inflation by about 0.4 percentage point on impact.
- The effect vanishes after two years.
- The average effect is similar between advanced and developing economies.
- The effect is asymmetric: positive oil price shocks have a larger effect than negative ones.
- The impact of oil price shocks has declined over time, due in large part to a better conduct of monetary policy.
- Cross-country variation in the recent period (2000 to 2015) is most robustly explained by the share of transport in the CPI basket and energy subsidies.

### Transmission channels and heterogeneity
- Transport share in the CPI basket: identified as a robust factor explaining stronger pass-through of oil price shocks to domestic inflation.
- Energy subsidies: presence and extent of subsidies are robustly associated with cross-country differences in inflation responses to oil price shocks.
- Asymmetry: positive oil price shocks transmit more strongly to domestic inflation than negative shocks.

### Temporal scope and data
- Panel dataset: unbalanced panel of 72 advanced and developing economies.
- Long-run sample period: 1970 to 2015.
- High-frequency analysis: monthly dataset covering 2000 to 2015.
- Paper length: 55 pages.

### Dynamics and monetary policy
- Declining impact over time is attributed in large part to improved conduct of monetary policy.
- The immediate pass-through on impact is 0.4 percentage point for a 10 percent global oil inflation increase, disappearing after two years.

### Policy implications
- Monetary policy improvements have reduced the inflationary impact of oil price shocks.
- Tailoring policy and inflation management should account for:
  - CPI composition (notably the transport share).
  - The presence and design of energy subsidies, which affect transmission.

*Source: IMF Working Paper by Sangyup Choi, Davide Furceri, Prakash Loungani, Saurabh Mishra, and Marcos Poplawski Ribeiro (September 5, 2017).*

---

## Content in this bundle

- **wp17196**
  - [wp17196 (Markdown version)](/-/media/files/publications/wp/2017/wp17196.pdf.md){rel="alternate" type="text/markdown"}
  - [wp17196 (PDF)](/-/media/files/publications/wp/2017/wp17196.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2017/09/05/oil-prices-and-inflation-dynamics-evidence-from-advanced-and-developing-economies-45180_