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Oil Prices Pass-Through to Domestic Inflation: Symmetric Versus Asymmetric Pass-Through

Author

Listed:
  • Mahmoud Ali Israa Ali
  • Ghoneim Hebatallah

    (Department of Economics, German University in Cairo, Cairo, Egypt)

  • Smolny Werner

    (Faculty of Mathematics and Economics, Ulm University, Ulm, Germany)

Abstract

This paper analyses the world oil price pass-through to Egypt’s domestic inflation rate. The paper adopts the augmented Phillips curve framework and further extends it to consider the growing body of empirical evidence, suggesting that oil prices may have asymmetric effects on inflation. Accordingly, the paper examines and compares the symmetric and the asymmetric oil price pass-through to domestic inflation in the short run and the long run. A linear ARDL-ECM and the bounds cointegration tests are applied as well as a nonlinear asymmetric NARDL model and Wald tests for short-run and long-run asymmetries. The sample consists of quarterly data covering the period from 2001 Q3 to 2019 Q2. The results show that, in the short run, the pass-through of world oil prices to the Egyptian domestic inflation rate is symmetric and of small magnitude. However, on the long-run, oil price pass-through to inflation appears to be nonlinear and asymmetric, specifically, declining oil prices lead to a fall in domestic inflation that is more significant than the rise in inflation caused by rising oil prices.

Suggested Citation

  • Mahmoud Ali Israa Ali & Ghoneim Hebatallah & Smolny Werner, 2023. "Oil Prices Pass-Through to Domestic Inflation: Symmetric Versus Asymmetric Pass-Through," Review of Middle East Economics and Finance, De Gruyter, vol. 19(2), pages 131-151, August.
    • Handle: RePEc:bpj:rmeecf:v:19:y:2023:i:2:p:131-151:n:2
    DOI: 10.1515/rmeef-2023-0003
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    More about this item

    Keywords

    augmented Phillips curve; Egypt; inflation; oil prices; pass-through effect;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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