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How OPEC Oil Shocks Shape U.S. CPI Inflation: Evidence from an IV-SVAR Approach

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  • Subash Bhandari
  • Hyeongwoo Kim

Abstract

This paper investigates the transmission of structural global oil market shocks to U.S. inflation using an instrumental variable structural vector autoregression (IV-SVAR) applied to highly disaggregated Consumer Price Index (CPI) components. We consider two types of shocks: oil supply shocks, arising from OPEC production disruptions, and oil supply news shocks, reflecting expectations of future production changes. The inflationary effects are concentrated in energy-related goods, significantly driving headline CPI, while non-necessity components exhibit muted or even negative responses. Moreover, news shocks generate short-lived, front-loaded effects, whereas supply shocks produce more persistent impacts.

Suggested Citation

  • Subash Bhandari & Hyeongwoo Kim, 2025. "How OPEC Oil Shocks Shape U.S. CPI Inflation: Evidence from an IV-SVAR Approach," Auburn Economics Working Paper Series auwp2025-06, Department of Economics, Auburn University.
    • Handle: RePEc:abn:wpaper:auwp2025-06
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    File URL: https://cla.auburn.edu/econwp/Archives/2025/2025-06.pdf
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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