The deflationary effect of oil prices in the euro area
The inflationary effect of oil price has been widely examined by academic literature. Nowadays, the main concern in the euro area (E.A.) is its deflationary effect. In this paper we propose a method to evaluate the effect of oil price changes on inflation as well as an indicator of inflation adjuste...
| Authors: | , , |
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| Format: | article |
| Publication Date: | 2016 |
| Country: | España |
| Institution: | Universidad Complutense de Madrid (UCM) |
| Repository: | Docta Complutense |
| Language: | English |
| OAI Identifier: | oai:docta.ucm.es:20.500.14352/23617 |
| Online Access: | https://hdl.handle.net/20.500.14352/23617 |
| Access Level: | Open access |
| Keyword: | E31 E37 Q43 Inflation Deflation Oil price Euro area Forecasts. Macroeconomía 5307.14 Teoría Macroeconómica |
| Summary: | The inflationary effect of oil price has been widely examined by academic literature. Nowadays, the main concern in the euro area (E.A.) is its deflationary effect. In this paper we propose a method to evaluate the effect of oil price changes on inflation as well as an indicator of inflation adjusted for the short-term effect of oil prices, which is aimed to assess the risk of deflation in real time. We illustrate the practical applications of these tools by predicting the evolution of inflation in the E.A., conditional to different scenarios of oil price deflation. Our main finding is that no deflationary scenario for oil prices results in a negative inflation rate forecast for December 2016, despite oil price variation accounting for 25% of the variance of changes in inflation. |
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