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How Does the Oil Price Shock Affect Consumers?

Author

Listed:
  • Liping Gao
  • Hyeongwoo Kim
  • Richard Saba

Abstract

This paper evaluates the degree of the pass-through effect of the oil price shock using disaggregated CPIs in the US. We find a significantly positive effect of the oil price shock only on energy-intensive CPIs, which imply that the strong pass-through effect on the total CPI is mainly driven by substantial increases in prices of energy-related commodities. Unexpected changes in the oil price may result in decreases in the budget for non-energy commodities, if the demand for energy is inelastic (Edelstein and Kilian, 2009). Decreases in the demand for non-energy commodities will then result in limited pass-through effects on prices of those goods, which is consistent with our empirical findings.

Suggested Citation

  • Liping Gao & Hyeongwoo Kim & Richard Saba, 2014. "How Does the Oil Price Shock Affect Consumers?," Auburn Economics Working Paper Series auwp2014-10, Department of Economics, Auburn University.
  • Handle: RePEc:abn:wpaper:auwp2014-10
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    File URL: https://cla.auburn.edu/econwp/Archives/2014/2014-10.pdf
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    References listed on IDEAS

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    1. Zhang, Dayong, 2008. "Oil shock and economic growth in Japan: A nonlinear approach," Energy Economics, Elsevier, vol. 30(5), pages 2374-2390, September.
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    Citations

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    Cited by:

    1. Baas, Timo & Belke, Ansgar, 2017. "Oil price shocks, monetary policy and current account imbalances within a currency union," CEPS Papers 13334, Centre for European Policy Studies.
    2. repec:eee:energy:v:130:y:2017:i:c:p:204-217 is not listed on IDEAS
    3. Jiranyakul, Komain, 2015. "Oil price shocks and domestic inflation in Thailand," MPRA Paper 62797, University Library of Munich, Germany.
    4. Cristina Conflitti & Matteo Luciani, 2017. "Oil Price Pass-Through into Core Inflation," Finance and Economics Discussion Series 2017-085, Board of Governors of the Federal Reserve System (U.S.).
    5. Abdulaziz Hamad Algaeed, 2017. "The Effects of Asymmetric Oil Price Shocks on the Saudi Consumption: An Empirical Investigation," International Journal of Energy Economics and Policy, Econjournals, vol. 7(1), pages 99-107.
    6. repec:gam:jsusta:v:10:y:2018:i:4:p:1080-:d:139614 is not listed on IDEAS
    7. Carlos Medel, 2015. "Fuelling Future Prices: Oil Price and Global Inflation," Working Papers Central Bank of Chile 770, Central Bank of Chile.
    8. repec:eco:journ2:2017-06-1 is not listed on IDEAS
    9. Sam Olofin & Afees A. Salisu, 2017. "Modelling oil price-inflation nexus: The role of asymmetries and structural breaks," Working Papers 020, Centre for Econometric and Allied Research, University of Ibadan.
    10. Razmi, Fatemeh & Azali, M. & Chin, Lee & Shah Habibullah, Muzafar, 2016. "The role of monetary transmission channels in transmitting oil price shocks to prices in ASEAN-4 countries during pre- and post-global financial crisis," Energy, Elsevier, vol. 101(C), pages 581-591.

    More about this item

    Keywords

    Oil Price Shocks; Pass-Through Effect; Disaggregated Consumer Price Indices; Vector Autoregression;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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