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How Does the Oil Price Shock Affect Consumers?

Listed author(s):
  • Liping Gao
  • Hyeongwoo Kim
  • Richard Saba

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.

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File URL: http://cla.auburn.edu/econwp/Archives/2014/2014-10.pdf
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Paper provided by Department of Economics, Auburn University in its series Auburn Economics Working Paper Series with number auwp2014-10.

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Date of creation: May 2014
Handle: RePEc:abn:wpaper:auwp2014-10
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Web page: http://cla.auburn.edu/economics/

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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.
  2. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
  3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  4. Darby, Michael R, 1982. "The Price of Oil and World Inflation and Recession," American Economic Review, American Economic Association, vol. 72(4), pages 738-751, September.
  5. Peter Ferderer, J., 1996. "Oil price volatility and the macroeconomy," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 1-26.
  6. Hyeongwoo Kim, 2013. "Generalized impulse response analysis: General or Extreme?," EconoQuantum, Revista de Economia y Negocios, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 10(2), pages 135-141, Julio - D.
  7. Korhonen, Iikka & Ledyaeva, Svetlana, 2010. "Trade linkages and macroeconomic effects of the price of oil," Energy Economics, Elsevier, vol. 32(4), pages 848-856, July.
  8. Gisser, Micha & Goodwin, Thomas H, 1986. "Crude Oil and the Macroeconomy: Tests of Some Popular Notions: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 95-103, February.
  9. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
  10. Robert B. Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 115-134, Fall.
  11. Edelstein, Paul & Kilian, Lutz, 2009. "How sensitive are consumer expenditures to retail energy prices?," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 766-779, September.
  12. Lutz Kilian & Logan T. Lewis, 2011. "Does the Fed Respond to Oil Price Shocks?," Economic Journal, Royal Economic Society, vol. 121(555), pages 1047-1072, 09.
  13. Cologni, Alessandro & Manera, Matteo, 2008. "Oil prices, inflation and interest rates in a structural cointegrated VAR model for the G-7 countries," Energy Economics, Elsevier, vol. 30(3), pages 856-888, May.
  14. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
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