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Gasoline price pass-through into CPI inflation: Evidence from Structure VAR

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  • Zhai, Weiyang

Abstract

We apply a Bayesian structural vector autoregression (VAR) model to estimate the impact of oil and exchange rate shocks on Japan’s gasoline prices and, furthermore, Japan’s gasoline price pass-through into CPI inflation. In addition to the traditional zero and sign restrictions, we adopt a Bayesian framework, which provides a broader set of credible regions. After evaluating the influence of oil supply shocks, economic activity shocks, oil-specific demand shocks, and exchange rate shocks, we found evidence that an increase in gasoline prices is associated with a positive economic activity shock and oil-specific demand shock. On the other hand, the impact of any of the above shocks was not observed on the Japanese consumer price index from the estimated results.

Suggested Citation

  • Zhai, Weiyang, 2025. "Gasoline price pass-through into CPI inflation: Evidence from Structure VAR," MPRA Paper 124208, University Library of Munich, Germany, revised 01 Apr 2025.
    • Handle: RePEc:pra:mprapa:124208
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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