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Effects of Commodity Price Shocks on Inflation: A Cross-Country Analysis

Atsushi Sekine () and Takayuki Tsuruga ()

ESRI Discussion paper series from Economic and Social Research Institute (ESRI)

Abstract: Since the 2000s, large fluctuations in commodity prices have become a concern among policymakers regarding price stability. This paper investigates the effects of commodity price shocks on headline inflation with a monthly panel consisting of 144 countries. We show that the effects of commodity price shocks on inflation are transitory. While the effect on the level of consumer prices varies across countries, the transitory effects are fairly robust, suggesting a low risk of the so-called second-round effect on inflation. Employing the smooth transition autoregressive models that use past inflation as the transition variable, we also explore the possibility that the effect of commodity price shocks could be persistent, depending on inflation regimes. In this specification, commodity price shocks may not have transitory effects when a country's currency is pegged to the U.S. dollar. However, the effect remains transitory in countries with exchange rate flexibility. JEL Classification: E31, E37, Q43

Keywords: Commodity prices; inflation; pass-through; local projections; smooth transition (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-mon, nep-opm and nep-sog
Date: 2016-07
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http://www.esri.go.jp/jp/archive/e_dis/e_dis331/e_dis331.pdf (application/pdf)

Related works:
Working Paper: Effects of commodity price shocks on inflation: A cross-country analysis (2017) Downloads
Working Paper: Effects of Commodity Price Shocks on Inflation: A Cross Country Analysis (2014) Downloads
Working Paper: Effects of Commodity Price Shocks on Inflation:A Cross-Country Analysis (2014) Downloads
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