A new insight into oil price-inflation nexus

The study hypothesizes if asymmetric relationship exists between oil price and inflation nexus. Essentially, this study uses a multiple threshold nonlinear autoregressive distributed lag model in a dynamic common correlated effect within the environment of heterogeneous panel framework. Results reve...

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Bibliographic Details
Published in:Resources policy 2020-10, Vol.68, p.101804, Article 101804
Main Authors: Raheem, Ibrahim D., Bello, Ajide Kazeem, Agboola, Yusuf H.
Format: Article
Language:English
Subjects:
Asymmetry
Autoregressive models
Breaks
Exports
Heterogeneous panels
Imports
Inflation
Oil price
Petroleum
Prices
Quantiles
Time series
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Summary:The study hypothesizes if asymmetric relationship exists between oil price and inflation nexus. Essentially, this study uses a multiple threshold nonlinear autoregressive distributed lag model in a dynamic common correlated effect within the environment of heterogeneous panel framework. Results reveal the importance of asymmetry in the model for both oil-import and exporting countries, with countries responding more to positive shocks. Quantile decompositions show that the asymmetry effect of oil price change fizzles out only for the oil importing country. For the oil exporting countries, asymmetry is important at higher quantiles. Accounting for breaks do not significantly alter earlier results. In line with empirical outcomes, policy implications are discussed. •The study examines the asymmetric relationship between oil price and inflation.•Results confirm the existence of asymmetry for both oil-importing and export countries.•Countries responds more to positive shock.•Asymmetry is weak for exporting countries.•This asymmetry fizzles out at higher quantiles for exporting countries.
ISSN:0301-4207
1873-7641
DOI:10.1016/j.resourpol.2020.101804