IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/57259.html
   My bibliography  Save this paper

How Do Oil Price Shocks Affect Consumer Prices?

Author

Listed:
  • Gao, Liping
  • Kim, Hyeongwoo
  • Saba, Richard

Abstract

This paper evaluates the degree of pass-through from oil price shocks to disaggregate U.S. consumer prices. We find significantly positive effects of the oil price shock only on energy-intensive CPIs, which imply that significantly positive, though quantitatively small, response of the total CPI is mainly driven by substantial increases in prices of energy-related commodities. Unexpected changes in the oil price may result in decreases in the budget for non-energy commodities, if the demand for energy is inelastic (Edelstein and Kilian, 2009). Decreases in the demand for non-energy commodities will then result in limited influences on prices of those goods, which is consistent with our empirical findings.

Suggested Citation

  • Gao, Liping & Kim, Hyeongwoo & Saba, Richard, 2014. "How Do Oil Price Shocks Affect Consumer Prices?," MPRA Paper 57259, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57259
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/57259/1/MPRA_paper_57259.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alquist, Ron & Kilian, Lutz & Vigfusson, Robert J., 2013. "Forecasting the Price of Oil," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 427-507, Elsevier.
    2. Lutz Kilian, 2014. "Oil Price Shocks: Causes and Consequences," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 133-154, October.
    3. Herrera, Ana María & Lagalo, Latika Gupta & Wada, Tatsuma, 2011. "Oil Price Shocks And Industrial Production: Is The Relationship Linear?," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 472-497, November.
    4. Lutz Kilian & Logan T. Lewis, 2011. "Does the Fed Respond to Oil Price Shocks?," Economic Journal, Royal Economic Society, vol. 121(555), pages 1047-1072, September.
    5. Paul van den Noord & Christophe André, 2007. "Why has Core Inflation Remained so Muted in the Face of the Oil Shock?," OECD Economics Department Working Papers 551, OECD Publishing.
    6. Lutz Kilian & Cheolbeom Park, 2009. "The Impact Of Oil Price Shocks On The U.S. Stock Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(4), pages 1267-1287, November.
    7. Lutz Kilian & Clara Vega, 2011. "Do Energy Prices Respond to U.S. Macroeconomic News? A Test of the Hypothesis of Predetermined Energy Prices," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 660-671, May.
    8. Goncalves, Silvia & Kilian, Lutz, 2004. "Bootstrapping autoregressions with conditional heteroskedasticity of unknown form," Journal of Econometrics, Elsevier, vol. 123(1), pages 89-120, November.
    9. Hooker, Mark A, 2002. "Are Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 540-561, May.
    10. Chen, Shiu-Sheng, 2009. "Oil price pass-through into inflation," Energy Economics, Elsevier, vol. 31(1), pages 126-133, January.
    11. Robert B. Barsky & Lutz Kilian, 2002. "Do We Really Know That Oil Caused the Great Stagflation? A Monetary Alternative," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 137-198, National Bureau of Economic Research, Inc.
    12. G. Elliott & C. Granger & A. Timmermann (ed.), 2013. "Handbook of Economic Forecasting," Handbook of Economic Forecasting, Elsevier, edition 1, volume 2, number 2.
    13. Edelstein, Paul & Kilian, Lutz, 2009. "How sensitive are consumer expenditures to retail energy prices?," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 766-779, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joëts, Marc & Mignon, Valérie & Razafindrabe, Tovonony, 2017. "Does the volatility of commodity prices reflect macroeconomic uncertainty?," Energy Economics, Elsevier, vol. 68(C), pages 313-326.
    2. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    3. Lutz Kilian & Robert J. Vigfusson, 2017. "The Role of Oil Price Shocks in Causing U.S. Recessions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(8), pages 1747-1776, December.
    4. Herrera, Ana María & Karaki, Mohamad B. & Rangaraju, Sandeep Kumar, 2019. "Oil price shocks and U.S. economic activity," Energy Policy, Elsevier, vol. 129(C), pages 89-99.
    5. Cristina Conflitti and Matteo Luciani, 2019. "Oil Price Pass-through into Core Inflation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    6. Ioannidis, Christos & Ka, Kook, 2018. "The impact of oil price shocks on the term structure of interest rates," Energy Economics, Elsevier, vol. 72(C), pages 601-620.
    7. Andrea BASTIANIN & Matteo MANERA, 2015. "How Does Stock Market Volatility React to Oil Shocks?," Departmental Working Papers 2015-09, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    8. Kurov, Alexander & Olson, Eric & Wolfe, Marketa Halova, 2024. "Have the causal effects between equities, oil prices, and monetary policy changed over time?," Journal of Commodity Markets, Elsevier, vol. 36(C).
    9. Kilian, Lutz & Zhou, Xiaoqing, 2020. "Oil prices, gasoline prices and inflation expectations: A new model and new facts," CFS Working Paper Series 645, Center for Financial Studies (CFS).
    10. Aastveit, Knut Are, 2014. "Oil price shocks in a data-rich environment," Energy Economics, Elsevier, vol. 45(C), pages 268-279.
    11. Bastianin, Andrea & Manera, Matteo, 2018. "How Does Stock Market Volatility React To Oil Price Shocks?," Macroeconomic Dynamics, Cambridge University Press, vol. 22(3), pages 666-682, April.
    12. Lutz Kilian, 2010. "Oil Price Shocks, Monetary Policy and Stagflation," RBA Annual Conference Volume (Discontinued), in: Renée Fry & Callum Jones & Christopher Kent (ed.),Inflation in an Era of Relative Price Shocks, Reserve Bank of Australia.
    13. Jo, Soojin & Karnizova, Lilia & Reza, Abeer, 2019. "Industry effects of oil price shocks: A re-examination," Energy Economics, Elsevier, vol. 82(C), pages 179-190.
    14. Christiane Baumeister & Gert Peersman, 2013. "Time-Varying Effects of Oil Supply Shocks on the US Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 1-28, October.
    15. Christiane Baumeister & Lutz Kilian, 2016. "Lower Oil Prices and the U.S. Economy: Is This Time Different?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(2 (Fall)), pages 287-357.
    16. Pal, Debdatta & Mitra, Subrata Kumar, 2019. "Asymmetric oil price transmission to the purchasing power of the U.S. dollar: A multiple threshold NARDL modelling approach," Resources Policy, Elsevier, vol. 64(C).
    17. Jochen H. F. Güntner & Katharina Linsbauer, 2018. "The Effects of Oil Supply and Demand Shocks on U.S. Consumer Sentiment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(7), pages 1617-1644, October.
    18. Lorusso, Marco & Pieroni, Luca, 2018. "Causes and consequences of oil price shocks on the UK economy," Economic Modelling, Elsevier, vol. 72(C), pages 223-236.
    19. Nima Ebrahimi & Craig Pirrong, 2020. "Oil jump risk," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(8), pages 1282-1311, August.
    20. Alquist, Ron & Kilian, Lutz & Vigfusson, Robert J., 2013. "Forecasting the Price of Oil," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 427-507, Elsevier.

    More about this item

    Keywords

    Oil Price Shocks; Pass-Through; Disaggregated Consumer Price Indices; Vector Autoregression;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:57259. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.