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Time variation in the inflation passthrough of energy prices

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  • Todd E. Clark
  • Stephen J. Terry

Abstract

From Bayesian estimates of a vector autoregression (VAR) which allows for both coefficient drift and stochastic volatility, we obtain the following three results. First, beginning in approximately 1975, the responsiveness of core inflation to changes in energy prices in the United States fell rapidly and remains muted. Second, this decline in the passthrough of energy inflation to core prices has been sustained through a recent period of markedly higher volatility of shocks to energy inflation. Finally, reduced energy inflation passthrough has persisted in the face of monetary policy which quickly became less responsive to energy inflation starting around 1985.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 09-06.

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Date of creation: 2009
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Handle: RePEc:fip:fedkrw:rwp09-06

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Cited by:
  1. Deborah Gefang & Gary Koop & Simon M. Potter, 2009. "The Dynamics of UK and US Inflation Expectations," Working Paper Series 14_09, The Rimini Centre for Economic Analysis, revised Jan 2009.
  2. Rondina, Francesca, 2012. "The role of model uncertainty and learning in the US postwar policy response to oil prices," Journal of Economic Dynamics and Control, Elsevier, vol. 36(7), pages 1009-1041.
  3. Richard G. Anderson & Jane M. Binner & Vincent A. Schmidt, 2011. "Connectionist-based rules describing the pass-through of individual goods prices into trend inflation in the United States," Working Papers 2011-007, Federal Reserve Bank of St. Louis.
  4. Martin Fukac, 2011. "Have rising oil prices become a greater threat to price stability?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 27-53.
  5. Fulli-Lemaire, Nicolas, 2012. "Allocating Commodities in Inflation Hedging Portfolios: A Core Driven Global Macro Strategy," MPRA Paper 42852, University Library of Munich, Germany, revised 15 Oct 2012.
  6. Atsushi Sekine & Takayuki Tsuruga, 2014. "Effects of Commodity Price Shocks on Inflation: A Cross Country Analysis," Discussion papers e-13-006, Graduate School of Economics Project Center, Kyoto University.
  7. Fulli-Lemaire, Nicolas, 2013. "Alternative inflation hedging strategies for ALM," MPRA Paper 43755, University Library of Munich, Germany.

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