Exploring the inflationary effect of oil price in the US: A quantile regression approach over 1876-2014
International Journal of Energy Sector Management
ISSN: 1750-6220
Article publication date: 1 April 2019
Issue publication date: 1 April 2019
Abstract
Purpose
The purpose of this paper is to explore the effect of oil price shocks on the US Consumer Price Index over the monthly period from 1876:01 to 2014:04.
Design/methodology/approach
The author uses the Bai and Perron (2003) structural break test to split the data sample into sub-periods delimited by the computed break dates. Afterwards, the author uses the quantile treatment effects over the full sample and then, by including sub-periods dummies to accommodate the selected structural breaks that drive the relationship between inflation and oil price growth.
Findings
The findings include a decreased transmission effect of oil price changes on inflation in recent years; a varied elasticity of inflation to the growth rate of oil prices across the distribution; and, finally, evidence of asymmetry in the relationship between the growth rate of oil prices and inflation, with a higher transmission mechanism for decreasing rather than increasing oil prices.
Practical implications
Policymakers should remain alert to monitoring potential inflation increases and should take precautionary measures to anchor inflation expectations, because inflation reacts differently to positive and negative oil price shocks. Moreover, authorities should consider the asymmetric reaction of inflation to oil price shocks to adopt an appropriate monetary policy strategy to achieve the price stability target.
Originality/value
The paper used a quantile regression model with structural breaks, which has not yet been used in the literature.
Keywords
Citation
Lahiani, A. (2019), "Exploring the inflationary effect of oil price in the US: A quantile regression approach over 1876-2014", International Journal of Energy Sector Management, Vol. 13 No. 1, pp. 60-76. https://doi.org/10.1108/IJESM-05-2018-0002
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited