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The Non-Linear Response of US State-Level Tradable and Non-Tradable Inflation to Oil Shocks: The Role of Oil-Dependence

Author

Listed:
  • Xin Sheng

    (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, United Kingdom)

  • Hardik A. Marfatia

    (Department of Economics, Northeastern Illinois University, 5500 N St Louis Ave, BBH 344G, Chicago, IL 60625, USA)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Qiang Ji

    (Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China)

Abstract

This paper investigates the effects of oil supply, oil-specific consumption demand, oil inventory demand shocks, and global economic activity shocks on state-level tradable and non-tradable inflation in the US. We estimate both linear and non-linear impulse responses using a lag-augmented local projections model in a panel context. Our results from a linear model show that both supply and demand-side oil shocks have a statistically significant impact on both types of inflation. While supply, global economic activity, and demand shocks have a greater impact on tradable inflation, non-tradable inflation responds more strongly to inventory shocks. Further, the non-linear model results provide evidence of heterogeneity in the magnitude and persistence of impact between high- and low-oil dependence regimes. Non-tradable inflation is more sensitive to nearly all components of oil price shocks in the high-oil dependence regime.

Suggested Citation

  • Xin Sheng & Hardik A. Marfatia & Rangan Gupta & Qiang Ji, 2021. "The Non-Linear Response of US State-Level Tradable and Non-Tradable Inflation to Oil Shocks: The Role of Oil-Dependence," Working Papers 202174, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202174
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    2. Zhang, Lixia & Bai, Jiancheng & Zhang, Yueyan & Cui, Can, 2023. "Global economic uncertainty and the Chinese stock market: Assessing the impacts of global indicators," Research in International Business and Finance, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Phillips curve; Structural oil shocks; State-level inflation; Local projection method;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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