Functional oil price expectations shocks and inflation

Journal article


Anderl, C. and Caporale, G. (2024). Functional oil price expectations shocks and inflation. Journal of Futures Markets.
AuthorsAnderl, C. and Caporale, G.
Abstract

This paper investigates the inflation effects of oil price expectations shocks constructed as functional shocks, i.e. as shifts in the entire oil futures term structure (both standard and risk-adjusted). The latter are then included in a vector autoregressive model with exogenous variables (VARX) to examine the US case. Counterfactual analysis is also carried out to investigate second-round effects on inflation through the inflation expectations channel. These are found to be significant, in contrast to earlier studies based on standard oil price shocks. Additional nonlinear local projections including a shock decomposition exercise show that inflation and inflation expectations are primarily driven by changes in the curvature (level and slope) factor when the latter are anchored (unanchored). These findings provide useful information to policymakers concerning the impact of oil price expectations on inflation and inflation expectations.

KeywordsFunctional shocks, oil price expectations, inflation anchoring, counterfactual analysis
Year2024
JournalJournal of Futures Markets
ISSN1096-9934
0270-7314
Publication process dates
Deposited09 Jul 2024
Accepted03 Jul 2024
Accepted author manuscript
License
File Access Level
Open
Additional information

Originally available:
Anderl, Christina and Caporale, Guglielmo Maria, Functional Oil Price Expectations Shocks and Inflation (2024). CESifo Working Paper No. 10998, Available at SSRN: https://ssrn.com/abstract=4764345 or http://dx.doi.org/10.2139/ssrn.4764345

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