Effect of Oil Price Pass-Through on Domestic Price Inflation: Evidence from Nonlinear ARDL Models
We intended to demonstrate that oil price can have a different pass-through effect into domestic prices at consumer and production levels subject to an oil dependency factor. The results were compared between oil importing and oil exporting countries. The nonlinear autoregressive distributed lags (NARDL) models were used to capture the asymmetric pass-through effects of oil price increases and decreases in consumer price and producer price respectively. Our results revealed that oil price changes can have asymmetric effect on CPI inflation directly and indirectly with more influential impact of indirect effect. This result holds for both groups of countries. The effect on producer price is much larger especially in oil importing group due to the high dependence of these countries on oil. Oil price changes did lead to increases in consumer prices in oil importing countries. This may due to effective monetary policy that enhances price stickiness in the economy.
Key words: Inflation, Oil price, Asymmetric effects, Nonlinear ARDL models.
JEL: C23, E31, Q43.