The Surprising Stability Between Gas Prices and Expected Inflation

Sam Devore () and Eric Olson ()
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Sam Devore: The University of Tulsa
Eric Olson: The University of Tulsa

Economics Bulletin, 2021, vol. 41, issue 2, 710-719

Abstract: We examine the correlation between nominal gas prices and consumer inflation expectations. Using data from the mid-1980s through the present, we do not find evidence that the relationship is time varying. Instead, our results suggest that the correlation between gas prices and inflation expectations is stable at approximately 0.30. Our results contribute to the vast literature regarding energy prices and the expectations augmented Phillips curve. We find very little evidence that the changing relationship between energy prices and inflation expectations has had any impact on the Phillip's curve or the missing inflation after the recession in 2008.

Keywords: Gas prices; Expected Inflation; GARCH (search for similar items in EconPapers)
JEL-codes: E3 E6 (search for similar items in EconPapers)
Date: 2021-04-09
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