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Effects of Commodity Price Shocks on Inflation: A Cross Country Analysis

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  • Atsushi Sekine
  • Takayuki Tsuruga

Abstract

Using local projections, this paper investigates e ects of commodity price shocks on in ation. We estimate impulse responses of the consumer price indexes (CPIs) to a commodity price shock, based on a monthly panel consisting of 120 countries. Our results from the local projections suggest that the CPIs are almost fully adjusted within a year in response to a commodity price shock and thus e ects of commodity price shocks are transitory. We then explore the possibility that the responses of the CPIs may be dependent on the in ation regimes. Based on the smooth transition autoregressive models that use the past in ation rate as a transition variable, we nd that commodity price shocks have more persistent e ects on in ation in the low in ation regime than in the high in ation regime. Our analysis also shows that, in the high in ation regime, there are (i) stabilizing roles of the exchange rate on consumer prices; and (ii) large di erences in price responses between developed and developing countries. However, these e ects are not detected in the low in ation regime. Our ndings suggest that business cycle factors may play an important role in understanding e ects of commodity price shocks on the CPIs.

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Bibliographic Info

Paper provided by Graduate School of Economics Project Center, Kyoto University in its series Discussion papers with number e-13-006.

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Length: 33 pages
Date of creation: Mar 2014
Date of revision:
Handle: RePEc:kue:dpaper:e-13-006

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Keywords: Labor demand; Commodity prices; in ation; pass-through; local projections; smooth transition autoregressive models;

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  1. Furceri, Davide & Zdzienicka, Aleksandra, 2011. "How costly are debt crises?," MPRA Paper 30953, University Library of Munich, Germany.
  2. Shintani, Mototsugu & Terada-Hagiwara, Akiko & Yabu, Tomoyoshi, 2013. "Exchange rate pass-through and inflation: A nonlinear time series analysis," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 512-527.
  3. Christiane Baumeister & Gert Peersman, 2012. "Time-Varying Effects of Oil Supply Shocks on the U.S. Economy," Working Papers 12-2, Bank of Canada.
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  5. José de Gregorio, 2012. "Commodity Prices, Monetary Policy and Inflation," Working Papers wp359, University of Chile, Department of Economics.
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  7. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
  8. Todd E. Clark & Stephen J. Terry, 2009. "Time variation in the inflation passthrough of energy prices," Research Working Paper RWP 09-06, Federal Reserve Bank of Kansas City.
  9. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  10. Chen, Shiu-Sheng, 2009. "Oil price pass-through into inflation," Energy Economics, Elsevier, vol. 31(1), pages 126-133, January.
  11. Jos� De Gregorio, 2012. "Commodity Prices, Monetary Policy, and Inflation†," IMF Economic Review, Palgrave Macmillan, vol. 60(4), pages 600-633, December.
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