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Oil Price Shock, Energy Prices and Inflation – A Comparison of Austria and the EU

Markus Arpa (), Jesus Crespo Cuaresma (), Ernest Gnan () and Maria Silgoner
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Markus Arpa: Oesterreichische Nationalbank,
Ernest Gnan: Oesterreichische Nationalbank, Economic Analysis Division,

Monetary Policy & the Economy, 2006, issue 1, 53–77

Abstract: The marked increase in the price of crude oil has also affected the prices of motor fuels, heating oil and other forms of energy. The extent and speed of these price reactions have varied widely in EU countries, and the accompanying inflationary effects have differed accordingly. For monetary and economic policy, it is important to know the channels through which oil price fluctuations are transmitted in order to assess their effects on inflation, economic growth and employment. This study presents a current overviewof oil and primary energy markets worldwide and estimates the elasticities and the speed of adjustment parameters of motor fuel and heating oil prices in response to oil price fluctuations in the EU-25. In addition, we test whether prices react asymmetrically to increases and decreases in crude oil prices and examine their transmission to other forms of energy, such as natural gas, electricity, solid fuels and district heating.We highlight the effect of volume-based excise taxes, which have a strong differentiating as well as dampening effect on prices, and address the issue of whether fiscal policy should cushion the impact of price increases, for example by lowering energy taxes or by providing energy subsidies. Then we quantify the direct inflationary effects of an oil price shock in Austria in a simple simulation using the OeNB's inflation forecasting model. Finally, we derive conclusions for monetary and economic policy.

Keywords: energy prices; energy markets; inflation; monetary policy. (search for similar items in EconPapers)
JEL-codes: E31 E52 E62 Q43 (search for similar items in EconPapers)
Date: 2006
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