Fuelling Future Prices: Oil Price and Global Inflation

Carlos A. Medel ()

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: Several years ago, the entire world experienced how fast and damaging certain inflationary shocks can be transmitted across seemingly uncorrelated countries. Despite the analysis of fuzzy transmission mechanisms, a direct inflationary transmission channel through global commodity prices shocks has been always of interest to policymakers—especially those concerned on imported inflation. The majority of international-to-domestic pass-through price measures are obviously insample estimations. However, in this article I analyse to what extent either global inflation or the Brent oil price provides more valuable information for future domestic inflation rates. I compare ten different multihorizon forecasts coming from a family of univariate time-series models for 53 countries. Each of these ten models is augmented with an exogenous variable—either and ad-hoc global inflation factor or Brent oil price. Overall, in almost 90% of the countries the use of any of these two variables improves the forecasting accuracy compared to the case without any exogenous factor. In 74 and 60% of the countries the global-inflation-based forecast outperforms oil-based forecast at 1- and 12-months-ahead. Twenty-four-months ahead the oil-based-forecast outperforms in 62% of the countries. Major predictive gains are observed for European OECD and Caribbean countries.

Date: 2015-09
New Economics Papers: this item is included in nep-ene and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.bcentral.cl/documents/33528/133326/DTBC_770.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:770

Access Statistics for this paper

More papers in Working Papers Central Bank of Chile from Central Bank of Chile Contact information at EDIRC.
Bibliographic data for series maintained by Alvaro Castillo ().