Oil price shocks and producer prices in Taiwan: an application of non-linear error-correction models

Kuo-Wei Chou and Po-Chun Lin

Journal of Chinese Economic and Business Studies, 2013, vol. 11, issue 1, 59-72

Abstract: This study estimated the short-term and long-term pass-through effects of oil prices on inflation in Taiwan from 1981M1-2011M5, employing the producer price general index and various basic sub-indices for evaluation. The empirical results show that oil prices have long-term and short-term pass-through effects on Taiwan’s producer price indices. Moreover, producer prices have significant non-linear error-correction relationships with the oil price, output and wages, suggesting asymmetric and time-variant properties of error correction. When the deviation of price in the equilibrium is greater, the error-correction adjustment will be faster. Our findings could therefore enable the monetary authorities and manufacturers to formulate a more effective policy from the oil price shocks.

Date: 2013
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DOI: 10.1080/14765284.2012.755302

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