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Effects of oil shocks and central bank credibility on price diffusion

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  • de Mendonça, Helder Ferreira
  • Garcia, Pedro Mendes

Abstract

This paper investigates the effects of international oil price pass-through and the central bank credibility on the diffusion of price increases among consumer prices. We use data that permit us to consider the international oil price pass-through and calculate the price diffusion index and central bank credibility indexes for nineteen countries from 2002 to 2019. The findings show that both the international oil price pass-through and the central bank credibility are relevant in explaining the price diffusion. The dynamic effects of oil price pass-through and credibility on price diffusion are long-lasting. Moreover, our results point out an asymmetry in the effect of increases and decreases in the oil price.

Suggested Citation

  • de Mendonça, Helder Ferreira & Garcia, Pedro Mendes, 2023. "Effects of oil shocks and central bank credibility on price diffusion," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 304-317.
    • Handle: RePEc:eee:reveco:v:84:y:2023:i:c:p:304-317
    DOI: 10.1016/j.iref.2022.11.025
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    More about this item

    Keywords

    Oil price pass-through; Central bank credibility; Price diffusion;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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