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The effects of oil price shocks on expenditure category CPI

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Abstract:

In this study, we apply a two-block structural vector autoregressive (VAR) model proposed by Kilian and Park (2009) in order to investigate the dynamic effects of changes in oil price on the expenditure category consumer price index (CPI) in the United States and Japan. Our results confirm that each expenditure category price index responded very differently to the same structural shock, and that whether changes in oil price function as a positive stimulus or a negative shock for the individual expenditure category prices also depends on the kind of underlying shock that drives the changes in oil price. Finally, our results also reveal that the manner in which changes in oil price affect each expenditure category price differs between the United States and Japan and these detailed-level differences may lead to aggregate-level differences in the price response of both countries to changes in oil price.

Keywords: C32; E30; E31; consumer price index; expenditure category; oil price shock; structural vector autoregressive model

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2014.881977

Affiliations: 1: Graduate School of Economics, Kobe University 2–1, Kobe, 657–8501, Japan 2: Faculty of Economics, Kobe University 2–1, Kobe, 657–8501, Japan

Publication date: May 13, 2014

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