Inflation Impact of the Price of Imported Crude Oil in a Large
This study empirically investigates whether the assumption of the monetary authority in Japan that rising prices on imported crude oil lead to domestic inflation in Japan has validity. In a model where real GDP growth, money stock growth, and the relative dependence on imported oil are allowed for, instrumental variables estimation reveals compelling evidence for the validity of this assumption. In particular, the greater the percentage increase in imported crude oil prices, the greater the domestic inflation rate. This impact is exacerbated the greater the percentage of oil consumption that is imported. In addition, oil price shocks involving imported crude oil price hikes of 40 percent or more in a given year further elevate the domestic inflation rate. Hence, it appears that this foundation of the monetary authority in Japan has validity
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Volume (Year): 56 (2003)
Issue (Month): 3 ()
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