Oil supply shocks and inflation tail risks

Andrea De Polis, Álvaro Fernández-Gallardo and José Nicolás Rosas
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Andrea De Polis: Banco de España
Álvaro Fernández-Gallardo: Banco de España
José Nicolás Rosas: Banco de España

No 2622, Working Papers from Banco de España

Abstract: We analyze the asymmetric transmission of oil supply news shocks to the inflation distribution in the United States, the euro area, and the United Kingdom. Using quantile local projections and high-frequency identification, we document a stark asymmetry across these three large advanced economies: while median responses are transitory, the 90th quantile exhibits significant and persistent increases beyond one year. This upside tail sensitivity, consistent with state-dependent pricing, suggests that supply shocks are structural innovations to the skewness of the inflation distribution. Monetary policy should actively monitor such persistent inflation tail risks to keep expectations anchored.

Keywords: oil supply shocks; inflation at risk; quantile local projections; non-linearities; state-dependence (search for similar items in EconPapers)
JEL-codes: E31 E52 Q43 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2026-07
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2622

DOI: 10.53479/44148

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