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A new insight into oil price-inflation nexus

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  • Raheem, Ibrahim D.
  • Bello, Ajide Kazeem
  • Agboola, Yusuf H.

Abstract

The study hypothesizes if asymmetric relationship exists between oil price and inflation nexus. Essentially, this study uses a multiple threshold nonlinear autoregressive distributed lag model in a dynamic common correlated effect within the environment of heterogeneous panel framework. Results reveal the importance of asymmetry in the model for both oil-import and exporting countries, with countries responding more to positive shocks. Quantile decompositions show that the asymmetry effect of oil price change fizzles out only for the oil importing country. For the oil exporting countries, asymmetry is important at higher quantiles. Accounting for breaks do not significantly alter earlier results. In line with empirical outcomes, policy implications are discussed.

Suggested Citation

  • Raheem, Ibrahim D. & Bello, Ajide Kazeem & Agboola, Yusuf H., 2020. "A new insight into oil price-inflation nexus," Resources Policy, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:jrpoli:v:68:y:2020:i:c:s0301420720303597
    DOI: 10.1016/j.resourpol.2020.101804
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    5. Youshu Li & Junjie Guo, 2022. "The asymmetric impacts of oil price and shocks on inflation in BRICS: a multiple threshold nonlinear ARDL model," Applied Economics, Taylor & Francis Journals, vol. 54(12), pages 1377-1395, March.
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    10. Oloko, Tirimisiyu F. & Ogbonna, Ahamuefula E. & Adedeji, Abdulfatai A. & Lakhani, Noman, 2021. "Oil price shocks and inflation rate persistence: A Fractional Cointegration VAR approach," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 259-275.
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    More about this item

    Keywords

    Oil price; Inflation; Asymmetry; Breaks; Heterogeneous panels;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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