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The Impact of the 2026 Iran War on U.S. Inflation: A Scenario Analysis

Author

Listed:
  • Kilian, Lutz
  • Plante, Michael D.
  • Richter, Alexander W.
  • Zhou, Xiaoqing

Abstract

This paper shows how to assess the inflationary impact of the rise in the price of oil caused by the 2026 Iran War. We first generate projections of the quarterly price of oil from a calibrated DSGE model of the global economy under a range of scenarios and then incorporate these projections into a monthly VAR model of the impact of U.S. gasoline price shocks on inflation and inflation expectations. Our analysis speaks to the magnitude and persistence of the impact of higher oil prices on headline and core PCE inflation and on household inflation expectations.

Suggested Citation

  • Kilian, Lutz & Plante, Michael D. & Richter, Alexander W. & Zhou, Xiaoqing, 2026. "The Impact of the 2026 Iran War on U.S. Inflation: A Scenario Analysis," CEPR Discussion Papers 21373, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21373
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    File URL: https://cepr.org/publications/DP21373
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    More about this item

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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