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The Transmission of Oil and Food Prices to Consumer Prices: Evidence for the MENA Countries

  • Ansgar Belke
  • Christian Dreger

This paper investigates the effects of global oil and food price shocks to consumer prices in Middle East-North African (MENA) countries using threshold cointegration methods. Oil and food price shocks increase domestic prices in the long run, whereby the impact of food prices dominates. While global prices are weakly exogenous, consumer prices respond to deviations from the equilibrium relationship. The short run adjustment pattern exhibits asymmetries and is particularly strong after positive shocks. Downward rigidities on wages may play a crucial role in this regard, as the relatively weak reactions of consumer prices after negative shocks are related to labour market institutions and public subsidies. The more rigid the regulations the more pronounced are the asymmetries. Robustness checks show that international price shocks do not affect GDP growth.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.430274.de/dp1332.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1332.

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Length: 25 p.
Date of creation: 2013
Date of revision:
Handle: RePEc:diw:diwwpp:dp1332
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  2. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
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  15. Headey, Derek & Fan, Shenggen, 2008. "Anatomy of a crisis: The causes and consequences of surging food prices," IFPRI discussion papers 831, International Food Policy Research Institute (IFPRI).
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