 Inflation, oil prices and exchange rates. The Euro’s dampening effectGarzón Antonio J. and Hierro Luis A. Journal of Policy Modeling, 2022, vol. 44, issue 1, 130-146 Abstract: This paper aims to analyse the relationship between the euro/dollar exchange rate and oil prices and examine what effect this relationship had on the transmission of oil price fluctuations to headline inflation in the euro area since the currency’s creation. We estimate an augmented Phillips curve including changes in oil price, through which we study the role of the exchange rate in oil price pass-through by using different specifications. The main findings reveal a positive relationship between the euro/dollar exchange rate and oil prices, such that an increase in the price of oil is followed by an appreciation in the euro. We also find that the transmission of oil price fluctuations to headline inflation in the euro area has been partially dampened by this appreciation in the euro/dollar exchange rate. These results do not hold for other economies with internationally relevant currencies, such as Japan and the United Kingdom. These findings have important implications for the implementation of monetary policy in the euro area in the face of oil price shocks. Keywords: Oil price; Pass-through; Inflation dynamics; Exchange rate (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:44:y:2022:i:1:p:130-146 DOI: 10.1016/j.jpolmod.2021.12.001 Access Statistics for this article Journal of Policy Modeling is currently edited by A. M. Costa More articles in Journal of Policy Modeling from Elsevier |
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