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How macroeconomic factors drive the linkages between inflation and oil markets in global economies? A multiscale analysis

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  • Mensi, Walid
  • Rehman, Mobeen Ur
  • Hammoudeh, Shawkat
  • Vo, Xuan Vinh
  • Kim, Won Joong

Abstract

This paper examines the nonlinear relationships between oil and inflation for twelve major global economies in the presence of important macroeconomic variables. Using the nonparametric quantile causality approach, we show strong evidence of causality-in-variance from inflation to changes in oil prices for all economies across different quantiles with the exception of Australia. On the other hand, evidence of a causality-in-mean from oil to inflation is identified for Australia, Canada, Greece, the UK, and the US and a causality-in-variance in the same direction for almost all economies, exhibiting a hump-shaped pattern across the quantiles. Results for partial and multivariate wavelet approaches show that the macroeconomic factors drive and accentuate the oil-inflation co-movements under all frequencies and over time. These results have significant implications for investors and policy makers.

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  • Mensi, Walid & Rehman, Mobeen Ur & Hammoudeh, Shawkat & Vo, Xuan Vinh & Kim, Won Joong, 2023. "How macroeconomic factors drive the linkages between inflation and oil markets in global economies? A multiscale analysis," International Economics, Elsevier, vol. 173(C), pages 212-232.
    • Handle: RePEc:eee:inteco:v:173:y:2023:i:c:p:212-232
    DOI: 10.1016/j.inteco.2022.12.003
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    Cited by:

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    2. Mishra, Brajesh & Ghosh, Sajal & Kanjilal, Kakali, 2023. "Policies to reduce India's crude oil import dependence amidst clean energy transition," Energy Policy, Elsevier, vol. 183(C).
    3. Karkowska, Renata & Urjasz, Szczepan, 2023. "How does the Russian-Ukrainian war change connectedness and hedging opportunities? Comparison between dirty and clean energy markets versus global stock indices," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).

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    More about this item

    Keywords

    Oil; Inflation; Macroeconomic factors; Nonparametric quantile causality; Partial and multivariate wavelets;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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