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The Transmission of Oil and Food Prices to Consumer Prices: Evidence for the MENA Countries

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  • Ansgar Belke
  • Christian Dreger

Abstract

This paper investigates the effects of global oil and food price shocks to consumer prices in Middle East-North African (MENA) countries using threshold cointegration methods. Oil and food price shocks increase domestic prices in the long run, whereby the impact of food prices dominates. While global prices are weakly exogenous, consumer prices respond to deviations from the equilibrium relationship. The short run adjustment pattern exhibits asymmetries and is particularly strong after positive shocks. Downward rigidities on wages may play a crucial role in this regard, as the relatively weak reactions of consumer prices after negative shocks are related to labour market institutions and public subsidies. The more rigid the regulations the more pronounced are the asymmetries. Robustness checks show that international price shocks do not affect GDP growth.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.430274.de/dp1332.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1332.

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Length: 25 p.
Date of creation: 2013
Date of revision:
Handle: RePEc:diw:diwwpp:dp1332

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Keywords: Oil and food price transmission; asymmetric error correction; MENA region;

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References

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  1. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  2. Ronald Albers & Marga Peeters, 2011. "Food and Energy Prices, Government Subsidies and Fiscal Balances in South Mediterranean Countries," European Economy - Economic Papers 437, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. José De Gregorio & Oscar Landerretche & Christopher Neilson, 2007. "Another Pass-Through Bites The Dust? Oil Prices And Inflation," Working Papers wp238, University of Chile, Department of Economics.
  4. Baltzer, Kenneth, 2013. "International to domestic price transmission in fourteen developing countries during the 2007-08 food crisis," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
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  15. David Zilberman & Gal Hochman & Deepak Rajagopal & Steve Sexton & Govinda Timilsina, 2013. "The Impact of Biofuels on Commodity Food Prices: Assessment of Findings," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 275-281.
  16. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
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  1. The transmission of oil and food prices to consumer prices. Evidence for the MENA countries
    by pmakdissi in NEP-ARA blog on 2014-05-09 12:05:08

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