Revisiting the linkages between oil prices and macroeconomy for the euro area: Does energy inflation still matter?

Fredj Jawadi, Abdoulkarim Idi Cheffou and Ruijun Bu

Energy Economics, 2023, vol. 127, issue PA

Abstract: This study revisits the relationship between oil prices and the macroeconomy for the euro area while assessing the effects of recent energy inflation on the real economy. We particularly investigate the impact of energy inflation on the real sector (household consumption, firm investment, and economic growth), financial sector (inflation, financial market), and economic agents' confidence. Considering the monetary authority's recent actions, we review this oil price–macroeconomy relationship while taking into account the ongoing monetary policy to check the policy's efficiency and to assess whether the recent successive interventions of the European Central Bank (ECB) have attenuated the effects of energy inflation. We test these hypotheses in linear and nonlinear frameworks using threshold models that offer a flexible econometric modeling. Our results reveal two interesting findings. First, an oil price shift exerts a significant and nonlinear effect on the real and financial sectors. This impact is asymmetrical and varies by regime, depending on the economic situation (geopolitical tension, inflation, war in Ukraine, etc.). Additionally, we empirically and endogenously estimate the threshold level at which the impact of oil price changes is significant. Second, the reaction of economic growth and inflation rate to oil price shifts remains highly significant, even when considering the ongoing monetary policy of the ECB.

Keywords: Oil Price shock; Energy inflation; Geopolitical tensions; Real economy; Financial sector; Nonlinearity; Threshold models (search for similar items in EconPapers)
JEL-codes: C22 G15 Q40 Q43 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:127:y:2023:i:pa:s014098832300556x

DOI: 10.1016/j.eneco.2023.107058

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