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Do energy-price shocks affect core-price measures?

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  • Owen F. Humpage
  • Eduard A. Pelz

Abstract

This paper investigates the relationship between energy-price shocks and three core measures of inflation in a vector autoregression model that incorporates measures of monetary policy and inflation expectations. The sample set includes data at monthly frequencies from 1980 through 2000. The authors find that that positive energy-price shocks have significant, though small, effects on all core-price measures after a lag of 12 to 18 months, but that negative shocks have no discernable impact. The results suggest that relative energy-price changes do not distort the inflation signals that standard core-price measures provide.

Suggested Citation

  • Owen F. Humpage & Eduard A. Pelz, 2002. "Do energy-price shocks affect core-price measures?," Working Papers (Old Series) 0215, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:0215
    DOI: 10.26509/frbc-wp-200215
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    References listed on IDEAS

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    4. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    5. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
    6. Mork, Knut Anton, 1989. "Oil and Macroeconomy When Prices Go Up and Down: An Extension of Hamilton's Results," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 740-744, June.
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    8. Mark A. Hooker, 1999. "Are oil shocks inflationary? Asymmetric and nonlinear specifications versus changes in regime," Finance and Economics Discussion Series 1999-65, Board of Governors of the Federal Reserve System (U.S.).
    9. Hamilton, James D & Herrera, Ana Maria, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 265-286, April.
    10. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 195-213, October.
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    Cited by:

    1. Grigorian David & Kock Udo, 2014. "Inflation and Conflict in Iraq: The Economics of Shortages Revisited," Review of Middle East Economics and Finance, De Gruyter, vol. 10(2), pages 101-122, August.
    2. Jamie Armour, 2006. "An Evaluation of Core Inflation Measures," Staff Working Papers 06-10, Bank of Canada.
    3. Ashima Goyal & Arjun Singh, 2006. "Through a glass darkly: Deciphering the impact of oil price shocks," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2006-012, Indira Gandhi Institute of Development Research, Mumbai, India.

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    Keywords

    Inflation (Finance); Petroleum industry and trade; Power resources - Prices;
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