Written by 8:21 pm Europe Economy

Second-Round Effects of Oil Price Shocks — Implications for Europe’s Inflation Outlook

Second-Round Effects of Oil Price Shocks — Implications for Europe’s Inflation Outlook

Author/Editor:


Chikako Baba
;
Jaewoo Lee



Publication Date:


September 9, 2022

Electronic Access:


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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.


Summary:

The pass-through effects of oil price shocks on wage and consumer price inflation vary with the states or structural characteristics of an economy. The effects have declined over time in Europe and been higher in emerging European economies than in advanced economies. The pass-through to wages is found to have been higher when the prevailing level of inflation was higher or when the degrees of unionization and centralized bargaining were higher, while lower under a higher credibility of monetary policy. The effects of oil price shocks on core inflation and inflation expectations are consistent with their effects on wages.

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