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How Does the Oil Price Shock Affect Consumers?

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  • Liping Gao
  • Hyeongwoo Kim
  • Richard Saba

Abstract

This paper evaluates the degree of the pass-through effect of the oil price shock using disaggregated CPIs in the US. We find a significantly positive effect of the oil price shock only on energy-intensive CPIs, which imply that the strong pass-through effect on 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 pass-through effects on prices of those goods, which is consistent with our empirical findings.

Suggested Citation

  • Liping Gao & Hyeongwoo Kim & Richard Saba, 2014. "How Does the Oil Price Shock Affect Consumers?," Auburn Economics Working Paper Series auwp2014-10, Department of Economics, Auburn University.
    • Handle: RePEc:abn:wpaper:auwp2014-10
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    File URL: https://cla.auburn.edu/econwp/Archives/2014/2014-10.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Oil Price Shocks; Pass-Through Effect; 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

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