Oil Prices Pass-Through to Domestic Inflation: Symmetric Versus Asymmetric Pass-Through

Mahmoud Ali Israa Ali, Hebatallah Ghoneim and Smolny Werner
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Mahmoud Ali Israa Ali: Department of Economics, German University in Cairo, Cairo, Egypt
Smolny Werner: Faculty of Mathematics and Economics, Ulm University, Ulm, Germany

Review of Middle East Economics and Finance, 2023, vol. 19, issue 2, 131-151

Abstract: This paper analyses the world oil price pass-through to Egypt’s domestic inflation rate. The paper adopts the augmented Phillips curve framework and further extends it to consider the growing body of empirical evidence, suggesting that oil prices may have asymmetric effects on inflation. Accordingly, the paper examines and compares the symmetric and the asymmetric oil price pass-through to domestic inflation in the short run and the long run. A linear ARDL-ECM and the bounds cointegration tests are applied as well as a nonlinear asymmetric NARDL model and Wald tests for short-run and long-run asymmetries. The sample consists of quarterly data covering the period from 2001 Q3 to 2019 Q2. The results show that, in the short run, the pass-through of world oil prices to the Egyptian domestic inflation rate is symmetric and of small magnitude. However, on the long-run, oil price pass-through to inflation appears to be nonlinear and asymmetric, specifically, declining oil prices lead to a fall in domestic inflation that is more significant than the rise in inflation caused by rising oil prices.

Keywords: augmented Phillips curve; Egypt; inflation; oil prices; pass-through effect (search for similar items in EconPapers)
JEL-codes: C22 E31 Q4 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/rmeef-2023-0003

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