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Inflation Dynamics and The Role of Oil Shocks: How Different Were the 1970s?

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  • Benjamin Wong

Abstract

This paper presents evidence on why inflation pass-through from oil shocks in the 21st century relative to the 1970s has dampened. First, results suggest global business cycle demand driven oil shocks are not inflationary. Second, there has been a reduction in inflation pass-through from oil supply and speculative oil demand shocks. Movements in oil inventories and production suggest oil supply and speculative oil demand shocks in the 1970s were different. Oil market participants expect higher oil prices to persist into the future. The analysis highlights the importance of modelling inventories as a means of capturing expectations in the oil market.

Suggested Citation

  • Benjamin Wong, 2013. "Inflation Dynamics and The Role of Oil Shocks: How Different Were the 1970s?," CAMA Working Papers 2013-59, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2013-59
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    File URL: https://crawford.anu.edu.au/sites/default/files/2026-01/59_2013%20Wong.pdf
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    References listed on IDEAS

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    Cited by:

    1. Chen, Shiyi & Chen, Dengke & Härdle, Wolfgang Karl, 2014. "The influence of oil price shocks on China's macro-economy: A perspective of international trade," SFB 649 Discussion Papers 2014-063, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    2. Soohyeon Kim & Jungho Baek & Eunnyeong Heo, 2020. "Crude oil inventories: The two faces of Janus?," Empirical Economics, Springer, vol. 59(2), pages 1003-1018, August.
    3. repec:een:camaaa:2014-45 is not listed on IDEAS
    4. Elekdag, Selim & Han, Fei, 2015. "What drives credit growth in emerging Asia?," Journal of Asian Economics, Elsevier, vol. 38(C), pages 1-13.
    5. repec:hum:wpaper:sfb649dp2014-063 is not listed on IDEAS

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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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