Modeling the nexus between oil shocks, inflation and commodity prices: Do Asymmetries really matter?

Naveed Raza (naveedrazza@gmail.com), Syed Jawad Hussain Shahzad, Muhammad Shahbaz and Aviral Tiwari
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Naveed Raza: Energy and Sustainable Development (ESD), Montpellier Business School, France

Economics Bulletin, 2017, vol. 37, issue 4, 2374-2383

Abstract: This study examines the asymmetric relation between oil shocks, U.S inflation and major commodity price indices of energy and non-energy commodities, vegetable oil and meals, raw material, industrial metal and precious metals. We utilize a novel technique namely nonlinear autoregressive distributed lags (hereafter NARDL) on a large monthly data set, ranging from January 1970 till December 2016, to study the short- and long-run asymmetric dynamics between major commodity price indices and oil and inflation shocks. Our findings reveal that both the oil and inflation shocks have differential impact across commodity prices over the both short- and long-run. Findings also support the proposition that moderate inflation and stable oil prices are conducive to the both short- and long-run stability in the prices of commodities. However, commodities may be regarded as better hedging tool and may retain their purchasing power during high inflationary periods.

Keywords: Inflation; Oil shocks; NARDL; commodities and asymmetries. (search for similar items in EconPapers)
JEL-codes: A1 F3 (search for similar items in EconPapers)
Date: 2017-10-26
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