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The deflationary effect of oil prices in the euro area

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  • Castro, César
  • Jerez, Miguel
  • Barge-Gil, Andrés

Abstract

The inflationary effect of oil price has been widely examined by academic literature. Nowadays, the main concern in the euro area (E.A.) is its deflationary effect. In this paper we propose a method to evaluate the effect of oil price changes on inflation as well as an indicator of inflation adjusted for the short-term effect of oil prices, which is aimed to assess the risk of deflation in real time. We illustrate the practical applications of these tools by predicting the evolution of inflation in the E.A., conditional to different scenarios of oil price deflation. Our main finding is that no deflationary scenario for oil prices results in a negative inflation rate forecast for December 2016, despite oil price variation accounting for 25% of the variance of changes in inflation.

Suggested Citation

  • Castro, César & Jerez, Miguel & Barge-Gil, Andrés, 2016. "The deflationary effect of oil prices in the euro area," Energy Economics, Elsevier, vol. 56(C), pages 389-397.
    • Handle: RePEc:eee:eneeco:v:56:y:2016:i:c:p:389-397
    DOI: 10.1016/j.eneco.2016.03.010
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    Cited by:

    1. Zivile Zekaite & Gabe de Bondt & Elke Hahn, 2017. "Alice: A New Inflation Monitoring Tool," EcoMod2017 10414, EcoMod.
    2. Mensi, Walid & Rehman, Mobeen Ur & Hammoudeh, Shawkat & Vo, Xuan Vinh & Kim, Won Joong, 2023. "How macroeconomic factors drive the linkages between inflation and oil markets in global economies? A multiscale analysis," International Economics, Elsevier, vol. 173(C), pages 212-232.
    3. Ligia Topan & Miguel Jerez & Sonia Sotoca, 2020. "The impact of oil prices on products groups inflation: is the effect asymmetric?," Documentos de Trabajo del ICAE 2020-01, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    4. Liu, Donghui & Meng, Lingjie & Wang, Yudong, 2021. "The asymmetric effects of oil price changes on China’s exports: New evidence from a nonlinear autoregressive distributed lag model," Journal of Asian Economics, Elsevier, vol. 77(C).
    5. Husaini, Dzul Hadzwan & Lean, Hooi Hooi, 2021. "Asymmetric impact of oil price and exchange rate on disaggregation price inflation," Resources Policy, Elsevier, vol. 73(C).
    6. Serikbay Ydyrys & Malika Munasipova & Kanat Ydyrys & Mariyam Ydyrys & Lyazzat Mukhambetova & Guldana Temirbayeva, 2018. "Econometric Analysis of Effect of Oil Price Change, Trade Balance and Other Variables on Inflation," International Journal of Energy Economics and Policy, Econjournals, vol. 8(4), pages 134-138.
    7. Ligia Topan & César Castro & Miguel Jerez & Andrés Barge-Gil, 2020. "Oil price pass-through into inflation in Spain at national and regional level," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 11(4), pages 561-583, December.
    8. César Castro & Rebeca Jiménez-Rodríguez & Pilar Poncela & Eva Senra, 2017. "A new look at oil price pass-through into inflation: evidence from disaggregated European data," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(1), pages 55-82, April.
    9. de Bondt, Gabe J. & Hahn, Elke & Zekaite, Zivile, 2021. "ALICE: Composite leading indicators for euro area inflation cycles," International Journal of Forecasting, Elsevier, vol. 37(2), pages 687-707.

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    More about this item

    Keywords

    Inflation; Deflation; Oil price; Euro area; Forecasts;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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