The deflationary effect of oil prices in the euro area



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Castro, Cesar and Jerez Méndez, Miguel and Barge Gil, Andrés (2016) The deflationary effect of oil prices in the euro area. Energy Economics, 56 . pp. 389-397. ISSN 0140-9883

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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.

Item Type:Article
Uncontrolled Keywords:Inflation; Deflation; Oil price; Euro area; Forecasts.
Subjects:Social sciences > Economics > Macroeconomics
JEL:E31, E37, Q43
ID Code:55528
Deposited On:04 Jun 2019 13:00
Last Modified:31 Oct 2019 12:06

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