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Inflation Dynamics and The Role of Oil Shocks: How Different Were the 1970s?

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  • Benjamin Wong

Abstract

This paper presents evidence on why inflation pass-through from oil shocks in the 21st century relative to the 1970s has dampened. First, results suggest global business cycle demand driven oil shocks are not inflationary. Second, there has been a reduction in inflation pass-through from oil supply and speculative oil demand shocks. Movements in oil inventories and production suggest oil supply and speculative oil demand shocks in the 1970s were different. Oil market participants expect higher oil prices to persist into the future. The analysis highlights the importance of modelling inventories as a means of capturing expectations in the oil market.

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File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2013-08/59_2013_wong_0.pdf
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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-59.

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Length: 38 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:een:camaaa:2013-59

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Keywords: Oil Shocks; Time-Varying Parameters; Inflation Pass-through;

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References

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Cited by:
  1. Benjamin Wong, 2014. "Inflation Expectations and How it Explains the Inflationary Impact of Oil Price Shocks: Evidence from the Michigan Survey," CAMA Working Papers 2014-45, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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