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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.

Suggested Citation

  • 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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    File URL: http://hdl.handle.net/10.1080/14765284.2012.755302
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    References listed on IDEAS

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    1. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
    2. John C. Williams, 2006. "Inflation persistence in an era of well-anchored inflation expectations," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct13.
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    Cited by:

    1. Salisu, Afees A. & Isah, Kazeem O., 2018. "Predicting US inflation: Evidence from a new approach," Economic Modelling, Elsevier, vol. 71(C), pages 134-158.
    2. 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.
    3. repec:eee:energy:v:125:y:2017:i:c:p:97-106 is not listed on IDEAS
    4. Jiranyakul, Komain, 2015. "Oil price shocks and domestic inflation in Thailand," MPRA Paper 62797, University Library of Munich, Germany.
    5. 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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