Asymmetric impact of oil price shocks on inflation: Evidence from quantile-on-quantile regression

Zhenyu Ge and Yang Sun

International Review of Financial Analysis, 2024, vol. 92, issue C

Abstract: In this paper, we explore the asymmetric impact of different oil price shocks on inflation after decomposing the shocks into supply shocks, demand shocks, and risk shocks. Using the quantile-on-quantile regression (QQR) approach, we reveal that when inflation is positive, oil supply shocks have a negative impact on inflation, and demand shocks affect it asymmetrically. Positive demand shocks have a positive effect on inflation, while negative demand shocks affect inflation negatively. In a deflationary environment, positive supply shocks and negative demand shocks do not have a significant impact on inflation, while negative supply shocks and positive demand shocks are conducive to alleviating deflation. The risk shocks affect inflation insignificantly in most of the periods. Only when the risk shocks are dramatically high, they will negatively affect inflation which is in a positive situation. However, the risk shocks no longer affect inflation significantly when inflation is also extremely high. Our conclusions are robust after being compared with the results of the quantile regression approach. We finally explore the time-varying characteristic of impact, finding that the influence of shocks is relatively higher during the major supply, demand, and risk shock events than in other periods.

Keywords: Oil price shocks; Inflation; Asymmetric impact; Quantile-on-quantile regression (search for similar items in EconPapers)
JEL-codes: E31 G15 Q43 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521924000292
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:92:y:2024:i:c:s1057521924000292

DOI: 10.1016/j.irfa.2024.103097

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().