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Propagation of Inflationary Shocks in Chile and an International Comparison of Progagation of Shocks to food and Energy Prices

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  • Michael Pedersen

Abstract

When a specific price is affected by a shock, this may spread to other prices and thus affect the overall inflation rate by more than the initial effect. This phenomenon is known as propagation of inflationary shocks and is the subject investigated in the present paper. It is argued that structural VAR models, with an imposed Cholesky decomposition, are suitable for the propagation analysis when the data vector includes the component affected by the initial shock and the rest of the CPI basket. The empirical analysis with annual Chilean inflation rates suggests that the propagation effects have generally diminished after the implementation of the inflation-targeting regime in September 1999. Propagation of shocks to the division including food prices, however, has increased, albeit with a delay of four months. An analysis of propagation of energy and food price shocks in seven industrialized and four Latin-American countries suggests that the effects in Chile are amongst the largest and, in the case of energy price shocks, with the longest duration.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 566.

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Date of creation: Apr 2010
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Handle: RePEc:chb:bcchwp:566

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  1. Jose de Gregorio & Oscar Landerretche & Christopher Neilson, 2007. "Another Pass-Through Bites the Dust? Oil Prices and Inflation," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  2. Jeffrey A. Frankel & David C. Parsley & Shang-Jin Wei, 2005. "Slow Passthrough Around the World: A New Import for Developing Countries?," NBER Working Papers 11199, National Bureau of Economic Research, Inc.
  3. Michael Pedersen, 2009. "Ponderaciones y la Tasa de Inflación en Chile," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 12(1), pages 117-120, April.
  4. Claudio Soto & Luis F. Céspedes, 2006. "Credibility and Inflation Targeting in Chile," Working Papers Central Bank of Chile 408, Central Bank of Chile.
  5. Miguel Fuentes, 2007. "Pass-Through to Import Prices: Evidence from Developing Countries," Documentos de Trabajo 320, Instituto de Economia. Pontificia Universidad Católica de Chile..
  6. Pablo Pincheira B., 2009. "La Dinámica de la Persistencia Inflacionaria en Chile," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 12(1), pages 97-104, April.
  7. Roberto Álvarez & Patricio Jaramillo & Jorge Selaive, 2008. "Exchange Rate Pass-Through into Import Prices: The Case of Chile," Working Papers Central Bank of Chile 465, Central Bank of Chile.
  8. Juan Pablo Medina & Claudio Soto, 2005. "Oil Shocks and Monetary Policy in an Estimated DSGE Model for a Small Open Economy," Working Papers Central Bank of Chile 353, Central Bank of Chile.
  9. Andrews, Donald W K & Chen, Hong-Yuan, 1994. "Approximately Median-Unbiased Estimation of Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 187-204, April.
  10. Eduardo López E. & Francisco Meneses P. & Felipe Córdova F. & M. Carolina Grünwald N., 2008. "Comportamiento del Precio Internacional de Granos Seleccionados y su Impacto en la Inflación," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 11(1), pages 119-129, April.
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Cited by:
  1. Michael Pedersen, 2011. "Propagation of Shocks to Food and Energy Prices: an International Comparison," Working Papers Central Bank of Chile 648, Central Bank of Chile.
  2. International Monetary Fund, 2012. "Inflation Responses to Commodity Price Shocks," IMF Working Papers 12/225, International Monetary Fund.

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