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The Surprising Stability Between Gas Prices and Expected Inflation

Author

Listed:
  • Sam Devore

    (The University of Tulsa)

  • Eric Olson

    (The University of Tulsa)

Abstract

We examine the correlation between nominal gas prices and consumer inflation expectations. Using data from the mid-1980s through the present, we do not find evidence that the relationship is time varying. Instead, our results suggest that the correlation between gas prices and inflation expectations is stable at approximately 0.30. Our results contribute to the vast literature regarding energy prices and the expectations augmented Phillips curve. We find very little evidence that the changing relationship between energy prices and inflation expectations has had any impact on the Phillip's curve or the missing inflation after the recession in 2008.

Suggested Citation

  • Sam Devore & Eric Olson, 2021. "The Surprising Stability Between Gas Prices and Expected Inflation," Economics Bulletin, AccessEcon, vol. 41(2), pages 710-719.
    • Handle: RePEc:ebl:ecbull:eb-20-01277
    as

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    References listed on IDEAS

    as
    1. Choi, Sangyup & Furceri, Davide & Loungani, Prakash & Mishra, Saurabh & Poplawski-Ribeiro, Marcos, 2018. "Oil prices and inflation dynamics: Evidence from advanced and developing economies," Journal of International Money and Finance, Elsevier, vol. 82(C), pages 71-96.
    2. Tse, Y. K., 2000. "A test for constant correlations in a multivariate GARCH model," Journal of Econometrics, Elsevier, vol. 98(1), pages 107-127, September.
    3. Hammoudeh, Shawkat & Reboredo, Juan C., 2018. "Oil price dynamics and market-based inflation expectations," Energy Economics, Elsevier, vol. 75(C), pages 484-491.
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    More about this item

    Keywords

    Gas prices; Expected Inflation; GARCH;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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