Functional Oil Price Expectations Shocks and Inflation

Christina Anderl and Guglielmo Maria Caporale

No 10998, CESifo Working Paper Series from CESifo

Abstract: This paper investigates the inflation effects of oil price expectations shocks constructed as functional shocks, i.e. as shifts in the entire oil futures term structure (both standard and risk-adjusted). The latter are then included in a vector autoregressive model with exogenous variables (VARX) to examine the US case. Counterfactual analysis is also carried out to investigate second-round effects on inflation through the inflation expectations channel. These are found to be significant, in contrast to earlier studies based on standard oil price shocks. Additional nonlinear local projections including a shock decomposition exercise show that inflation and inflation expectations are primarily driven by changes in the curvature (level and slope) factor when the latter are anchored (unanchored). These findings provide useful information to policymakers concerning the impact of oil price expectations on inflation and inflation expectations.

Keywords: functional shocks; oil price expectations; inflation anchoring; counterfactual analysis (search for similar items in EconPapers)
JEL-codes: C32 E31 Q43 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-cba, nep-ene and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10998

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