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Oil price shocks and producer prices in Taiwan: an application of non-linear error-correction models

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  • Kuo-Wei Chou
  • Po-Chun Lin

Abstract

This study estimated the short-term and long-term pass-through effects of oil prices on inflation in Taiwan from 1981M1-2011M5, employing the producer price general index and various basic sub-indices for evaluation. The empirical results show that oil prices have long-term and short-term pass-through effects on Taiwan’s producer price indices. Moreover, producer prices have significant non-linear error-correction relationships with the oil price, output and wages, suggesting asymmetric and time-variant properties of error correction. When the deviation of price in the equilibrium is greater, the error-correction adjustment will be faster. Our findings could therefore enable the monetary authorities and manufacturers to formulate a more effective policy from the oil price shocks.

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  • Kuo-Wei Chou & Po-Chun Lin, 2013. "Oil price shocks and producer prices in Taiwan: an application of non-linear error-correction models," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 11(1), pages 59-72, February.
    • Handle: RePEc:taf:jocebs:v:11:y:2013:i:1:p:59-72
    DOI: 10.1080/14765284.2012.755302
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    Cited by:

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    6. Moses Tule & Afees A. Salisu & Charles Chimeke, 2018. "You are what you eat: The role of oil price in Nigeria inflation forecast," Working Papers 040, Centre for Econometric and Allied Research, University of Ibadan.
    7. Moses Tule & Afees Salisu & Charles Chiemeke, 2020. "Improving Nigeria’s Inflation Forecast with Oil Price: The Role of Estimators," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(1), pages 191-229, March.
    8. Salisu, Afees A. & Isah, Kazeem O. & Oyewole, Oluwatomisin J. & Akanni, Lateef O., 2017. "Modelling oil price-inflation nexus: The role of asymmetries," Energy, Elsevier, vol. 125(C), pages 97-106.
    9. Sarwar, Muhammad Nadeem & Hussain, Hamid & Maqbool, Muhammad Bilal, 2020. "Pass through effects of oil price on food and non-food prices in Pakistan: A nonlinear ARDL approach," Resources Policy, Elsevier, vol. 69(C).
    10. Zakaria, Muhammad & Khiam, Shahzeb & Mahmood, Hamid, 2021. "Influence of oil prices on inflation in South Asia: Some new evidence," Resources Policy, Elsevier, vol. 71(C).
    11. Pradeep, Siddhartha, 2022. "Impact of diesel price reforms on asymmetricity of oil price pass-through to inflation: Indian perspective," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    12. Raheem, Ibrahim D. & Bello, Ajide Kazeem & Agboola, Yusuf H., 2020. "A new insight into oil price-inflation nexus," Resources Policy, Elsevier, vol. 68(C).
    13. Jiranyakul, Komain, 2015. "Oil price shocks and domestic inflation in Thailand," MPRA Paper 62797, University Library of Munich, Germany.
    14. Salisu, Afees A. & Isah, Kazeem O., 2018. "Predicting US inflation: Evidence from a new approach," Economic Modelling, Elsevier, vol. 71(C), pages 134-158.

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