Cross-country study of the linkages between COVID-19, oil prices, and inflation in the G7 countries

David Y. Aharon, Mukhriz Izraf Azman Aziz and Safwan Mohd Nor

Finance Research Letters, 2023, vol. 57, issue C

Abstract: We examine how inflation in the G7 countries is influenced by three distinct oil price shocks. Our methodology, following Killian (2009), employs a two-stage approach that uses Cholesky decomposition and cumulative impulse response functions to evaluate the impact of oil shocks on G7 inflation, with a focus on supply, aggregate demand, and oil-specific demand shocks. Inflation in the G7 is significantly impacted by aggregate demand and oil-specific demand shocks during the pandemic, whereas shocks to the supply of oil have a limited effect. Our findings may have significant implications for investment diversification and hedging, as well as for policymakers.

Keywords: G7; COVID-19; SVAR; Oil shocks; Inflation (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005445

DOI: 10.1016/j.frl.2023.104172

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