Oil Prices and Inflation: Identifying Channels for Oil Exporters

Vugar Ahmadov, Salman Huseynov () and Peter Pedroni
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Salman Huseynov: Central Bank of Azerbaijan Republic

No 1801, Working Papers from Central Bank of Azerbaijan Republic

Abstract: In this paper, we study oil price pass through into domestic inflation in a panel of oil exporting countries and propose a methodology to disentangle potential effects of different transmission channels. In particular, we investigate effects of three transmission channels, namely, import (cost) channel, exchange rate channel, and fiscal (demand) channel and quantify the relative importance of them. We find that the most important channel is the import channel and the least important one is the fiscal channel in contrast to wildly held belief. This finding, though surprising, can be explained by vast heterogeneity and rising integration among countries. We also find that institutional arrangements such as exchange regime, existence of fiscal rules and sovereign wealth funds are important pillars of a lower inflation environment in oil exporting countries.

Keywords: Panel VAR; Oil Exporting Countries (search for similar items in EconPapers)
JEL-codes: C22 C23 E31 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2018-01-02
New Economics Papers: this item is included in nep-ene, nep-int, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aze:wpaper:1801

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