How OPEC Oil Shocks Shape U.S. CPI Inflation: Evidence from an IV-SVAR Approach

Subash Bhandari and Hyeongwoo Kim ()

No auwp2025-06, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: This paper investigates the transmission of structural global oil market shocks to U.S. inflation using an instrumental variable structural vector autoregression (IV-SVAR) applied to highly disaggregated Consumer Price Index (CPI) components. We consider two types of shocks: oil supply shocks, arising from OPEC production disruptions, and oil supply news shocks, reflecting expectations of future production changes. The inflationary effects are concentrated in energy-related goods, significantly driving headline CPI, while non-necessity components exhibit muted or even negative responses. Moreover, news shocks generate short-lived, front-loaded effects, whereas supply shocks produce more persistent impacts.

Keywords: Oil Supply Shock; OPEC News Shock; Disaggregated CPI Components; Instrumental Variable Structural Vector Autoregression (search for similar items in EconPapers)
JEL-codes: E3 F4 Q4 (search for similar items in EconPapers)
Date: 2025-09
New Economics Papers: this item is included in nep-ifn and nep-mon
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