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Energy Prices, Inflation, and Recession, 1974-1975

Knut Anton Mork and Robert E. Hall

Year: 1980
Volume: Volume 1
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No3-2
View Abstract

Abstract:
The rapid escalations of energy prices, in late 1973 and early 1974 and again in mid- and late-1979, have had major adverse impactson the U.S. economy. The energy price shock of 1973-1974 played a dominant role, by most accounts, in bringing about the deep recession and high inflation of the mid-1970s. In the most recent period, the full impact is yet to be seen, but it does not appear to be minor.In a previous paper published in this journal, (volume 1, number 2, April 1980), we presented the results of our efforts to quantify the economic impact on the U.S. economy of the July 1979 oil price increases.



Energy Demand Elasticities in Industrialized Countries: A Survey

George Kouris

Year: 1983
Volume: Volume 4
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol4-No3-5
View Abstract

Abstract:
A high price elasticity for energy demand implies a long-term ability of the economy to absorb the impact of higher energy prices. Thus price shocks, after generating pronounced inflationary and recessionary effects over the short term, do not act as a constraint to economic growth over the longer term. By contrast, a low price elasticity implies weak reactions to increasing energy costs and a protracted adverse effect on output and inflation. Unfortunately, a survey of the literature on energy demand elasticities shows diverse results. Should econometric results be used for policymaking and planning, then a critical and eclectic attitude is imperative to screen out the most relevant aspects of the empirically determined price elasticities.



Petroleum Price Elasticity, Income Effects, and OPEC's Pricing Policy

F. Gerard Adams and Jaime Marquez

Year: 1984
Volume: Volume 5
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No1-7
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Abstract:
A standard result from static economic theory is that a monopolist with zero cost will maximize profits by charging the price at which the demand has unit elasticity. Yet, the demand for petroleum, as seen by consumers, is price inelastic, and empirical estimates of the price elasticity for petroleum are typically less than one. Given the relatively low production cost for Middle East oil and the optimization rule referred to above, a natural question is whether OPEC, acting as a monopoly, has exhausted its potential for forcing price increases or whether it will ultimately be able to charge still higher prices as it tries to optimize its earnings. This possibility of higher oil prices is important for OPEC and for oil-consuming countries-for OPEC because the finite nature of resources implies that excess production today represents an irrecoverable loss; for consuming countries because of the high cost of oil and the adverse consequences of still higher oil prices on inflation and unemployment.



Rate-of-Return Attrition and Inflation-Induced Penalties in Public Utility Common Stocks

Wallace N. Davidson, III and John L. Glascock

Year: 1984
Volume: Volume 5
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No4-6
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Abstract:
While the rate of inflation seems to be easing, the interest in its impact on corporate security prices (Feldstein, 1980) and on corporate investment policy (Caks, 1981; Higgins, 1977) has continued. Unlike nonregulated firms, utilities face the added difficulties of regulation-induced inflation penalties and return on equity (ROE) attrition.



Analyzing Impacts of Potential Tax Policy Changes on U.S. Oil Security

James L. Sweeney and Michael J. Boskin

Year: 1985
Volume: Volume 6
Number: Special Issue
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-NoSI-8
No Abstract



An Assessment of the Inflationary Impact of Oil Shocks in the Euro Area

Pascal Jacquinot, Mika Kuismanen, Ricardo Mestre and Martin Spitzer

Year: 2009
Volume: Volume 30
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No1-3
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Abstract:
This paper explores the links between oil prices and inflation in the euro area by means of a DSGE model reflecting the structure of the energy markets in the euro area and calibrated to match the data using reduced-form time series techniques. The analysis focuses on the impact on inflation (through the Harmonised Index of Consumer Prices (HICP) and its energy component) in the short and medium run. The main conclusion is that, in the short term, changes in oil prices are of vital importance for the understanding of inflation, but that at longer horizons their impact on inflation is much more complex and depends on the initial shock. An analysis of the sources of oil price increases remains therefore a pre-requisite for a proper understanding of historical fluctuations of oil prices and the related developments in the euro area, and for drawing policy conclusions.



Revisiting the Inflationary Effects of Oil Prices

Shiu-Sheng Chen

Year: 2009
Volume: Volume 30
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No4-5
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Abstract:
This paper uses a structural vector autoregression model to investigate the inflationary effects of oil prices. Rather than simply infer the oil price changes as oil supply shocks, we identify three different shocks in the crude oil market: the oil supply shock, the global aggregate demand shock, and the oil-market specific demand shock. We then use impulse response functions to compute the conditional oil price pass-through ratios. It is found that the largest oil price pass-through is caused by oil supply shocks. However, evidence from historical decompositions suggests that the oil price movements have been driven by shocks from strong global aggregate demand and oil demand while only minor contributions come from oil supply shocks. Disentangling demand and supply shocks in the crude oil market helps to uncover the fact that a recent decline in unconditional oil price pass-through may come from the low conditional pass-through caused by global demand shocks.



Oil Price Pass-through into Core Inflation

Cristina Conflitti and Matteo Luciani

Year: 2019
Volume: Volume 40
Number: Number 6
DOI: 10.5547/01956574.40.6.ccon
View Abstract

Abstract:
We estimate the oil price pass-through into consumer prices both in the U.S. and in the euro area. In particular, we disentangle the specific effect that an oil price change might have on each disaggregate price, from the effect on all prices that an oil price change might have since it affects the whole economy. To do so, we first estimate a Dynamic Factor Model on a panel of disaggregate price indicators, and then we use VAR techniques to estimate the pass-through. Our results show that the oil price passes through core inflation only via its effect on the whole economy. This pass-through is estimated to be small, but statistically different from zero and long lasting.



Is Oil Price Still Driving Inflation?

Patricia Renou-Maissant

Year: 2019
Volume: Volume 40
Number: Number 6
DOI: 10.5547/01956574.40.6.pren
View Abstract

Abstract:
In this paper, we empirically investigate the effects of oil price changes on inflation over the period 1991-2016 for eight industrial countries: the United States, Canada, Japan, Australia, Germany, France, Italy, and the UK. In doing so, we use an oil-augmented Phillips curve with unobserved components and we consider time-varying coefficients. The results show that even over a period of low and stable inflation, oil prices play a significant role in the dynamics of inflation. In all the countries except Germany, oil pass-through into inflation increased from the early 2000s up until the global financial crisis. In the United States it has nearly doubled in the last fifteen years. These findings suggest that central banks must continue to monitor oil prices closely.





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