The Non-Linear Response of US State-Level Tradable and Non-Tradable Inflation to Oil Shocks: The Role of Oil-Dependence

Xin Sheng (), Hardik Marfatia (), Rangan Gupta and Qiang Ji ()
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Xin Sheng: Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, United Kingdom
Hardik Marfatia: Department of Economics, Northeastern Illinois University, 5500 N St Louis Ave, BBH 344G, Chicago, IL 60625, USA
Qiang Ji: Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China

No 202174, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper investigates the effects of oil supply, oil-specific consumption demand, oil inventory demand shocks, and global economic activity shocks on state-level tradable and non-tradable inflation in the US. We estimate both linear and non-linear impulse responses using a lag-augmented local projections model in a panel context. Our results from a linear model show that both supply and demand-side oil shocks have a statistically significant impact on both types of inflation. While supply, global economic activity, and demand shocks have a greater impact on tradable inflation, non-tradable inflation responds more strongly to inventory shocks. Further, the non-linear model results provide evidence of heterogeneity in the magnitude and persistence of impact between high- and low-oil dependence regimes. Non-tradable inflation is more sensitive to nearly all components of oil price shocks in the high-oil dependence regime.

Keywords: Phillips curve; Structural oil shocks; State-level inflation; Local projection method (search for similar items in EconPapers)
JEL-codes: E31 E32 Q43 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2021-10
New Economics Papers: this item is included in nep-ene and nep-mac
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Journal Article: The non-linear response of US state-level tradable and non-tradable inflation to oil shocks: The role of oil-dependence (2023)
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