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Cross-country study of the linkages between COVID-19, oil prices, and inflation in the G7 countries

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  • Aharon, David Y.
  • Aziz, Mukhriz Izraf Azman
  • Nor, Safwan Mohd

Abstract

We examine how inflation in the G7 countries is influenced by three distinct oil price shocks. Our methodology, following Killian (2009), employs a two-stage approach that uses Cholesky decomposition and cumulative impulse response functions to evaluate the impact of oil shocks on G7 inflation, with a focus on supply, aggregate demand, and oil-specific demand shocks. Inflation in the G7 is significantly impacted by aggregate demand and oil-specific demand shocks during the pandemic, whereas shocks to the supply of oil have a limited effect. Our findings may have significant implications for investment diversification and hedging, as well as for policymakers.

Suggested Citation

  • Aharon, David Y. & Aziz, Mukhriz Izraf Azman & Nor, Safwan Mohd, 2023. "Cross-country study of the linkages between COVID-19, oil prices, and inflation in the G7 countries," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005445
    DOI: 10.1016/j.frl.2023.104172
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    Keywords

    G7; COVID-19; SVAR; Oil shocks; Inflation;
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