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Inflation Responses to Commodity Price Shocks

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  • International Monetary Fund
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    Abstract

    This paper relates the inflationary impact of commodity price shocks across countries to a broad range of structural characteristics and policy frameworks over the period 2001-2010, using several approaches. The analysis suggests that economies with higher food shares in CPI baskets, fuel intensities, and pre-existing inflation levels were more prone to experience sustained inflationary effects from commodity price shocks. Countries with more independent central banks and higher governance scores seem to have contained the impact of these shocks better. The effect of the presence of inflation targeting regimes, however, appears very modest and not evident during the 2008 food price shock.The evidence suggests that trade openness, financial development, dollarization, and labor market flexibility do not significantly influence the way in which domestic inflation responds to international commodity price shocks.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/225.

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    Length: 32
    Date of creation: 01 Sep 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/225

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    Keywords: Commodity prices; External shocks; Governance; Inflation targeting; inflation; monetary policy; central bank; inflationary impact; monetary fund; price inflation; inflation rates; foreign currency; high inflation; inflationary pressures; increase in inflation; price level; lower inflation; inflation response; inflation dynamics; real interest rate; inflation-targeting; monetary economics; general price level; inflation targeting regime; high inflation environment; terms of trade; effect of inflation; terms of trade shock; average inflation; effective exchange rates; relative price; low inflation; foreign exchange; measure of inflation; effects of inflation; inflation forecasts; monetary regime; monetary stance; monetary policy framework; monetary policy transparency; monetary aggregates; monetary frameworks; inflation rate; price stability; inflation stabilization; annual inflation; rise in inflation; real interest rates; inflation process; inflation performance;

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    1. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Nov.
    2. Hooker, Mark A, 2002. "Are Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 34(2), pages 540-61, May.
    3. Jose De Gregorio. & Oscar Landerretche. & Christopher Neilson., 2007. "Another Pass-Through Bites the Dust? Oil Prices and Inflation," Working Papers Central Bank of Chile, Central Bank of Chile 417, Central Bank of Chile.
    4. Eiji Fuji & Jeannine Bailliu, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Computing in Economics and Finance 2004, Society for Computational Economics 135, Society for Computational Economics.
    5. Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Publishing.
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    7. Robin Brooks & Kenneth Rogoff & Ashoka Mody & Nienke Oomes & Aasim M. Husain, 2004. "Evolution and Performance of Exchange Rate Regimes," IMF Occasional Papers 229, International Monetary Fund.
    8. Chen, Shiu-Sheng, 2009. "Oil price pass-through into inflation," Energy Economics, Elsevier, Elsevier, vol. 31(1), pages 126-133, January.
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    10. Inci Ötker & David Vávra & Francisco F. Vázquez & Luis Ignacio Jácome & Karl Friedrich Habermeier & Kotaro Ishi & Alessandro Giustiniani & Turgut Kisinbay, 2009. "Inflation Pressures and Monetary Policy Options in Emerging and Developing Countries-A Cross Regional Perspective," IMF Working Papers 09/1, International Monetary Fund.
    11. Luis Catão & Roberto Chang, 2010. "World Food Prices and Monetary Policy," NBER Working Papers 16563, National Bureau of Economic Research, Inc.
    12. Bystedt, Brianne & Brito, Ricardo D., 2008. "Inflation targeting in emerging economies: Panel evidence," Insper Working Papers, Insper Working Paper, Insper Instituto de Ensino e Pesquisa wpe_125, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    13. Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
    14. Martin Cerisola & Gaston Gelos, 2009. "What drives inflation expectations in Brazil? An empirical analysis," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 41(10), pages 1215-1227.
    15. Olivier J. Blanchard & Jordi Gali, 2007. "The Macroeconomic Effects of Oil Shocks: Why are the 2000s So Different from the 1970s?," NBER Working Papers 13368, National Bureau of Economic Research, Inc.
    16. Eduardo Lora & Andrew Powell & Pilar Tavella, 2011. "How Will the Food Price Shock Affect Inflation in Latin America and the Caribbean?," Research Department Publications, Inter-American Development Bank, Research Department 4719, Inter-American Development Bank, Research Department.
    17. Gaston Gelos & Alessandro Prati & Oya Celasun, 2004. "Obstacles to Disinflation," IMF Working Papers 04/111, International Monetary Fund.
    18. Marco Arnone & Bernard J Laurens & Jean-Fran�ois Segalotto & Martin Sommer, 2009. "Central Bank Autonomy: Lessons from Global Trends," IMF Staff Papers, Palgrave Macmillan, vol. 56(2), pages 263-296, June.
    19. Michael Pedersen, 2010. "Propagation of Inflationary Shocks in Chile and an International Comparison of Progagation of Shocks to food and Energy Prices," Working Papers Central Bank of Chile, Central Bank of Chile 566, Central Bank of Chile.
    20. C. Baumeister & G. Peersman & I. Van Robays & -, 2009. "The Economic Consequences of Oil Shocks: Differences Across Countries and Time," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 09/630, Ghent University, Faculty of Economics and Business Administration.
    21. Renee Fry & Callum Jones & Christopher Kent, 2010. "Inflation in an Era of Relative Pirce Shocks," CAMA Working Papers 2010-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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