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Inflation synchronization among the G7 and China: The important role of oil inflation

Elsayed, A. H. and Hammoudeh, S and Sousa, R. M. (2021) 'Inflation synchronization among the G7 and China: The important role of oil inflation.', Energy economics., 100 . p. 105332.

Abstract

We investigate the interconnectedness and spillovers between oil price inflation and CPI inflation in the G7 countries and China over the available period 1987M6-2020M6. To this end, we employ the multivariate DECO-GARCH model and both time-domain and frequency-domain spillover methods to achieve the objectives. We find that there is a reasonably high degree of integration between the oil price inflation and the CPI inflation ratesin those countries. This relationship is not only time-varying, but also has been rising over time and, remarkably so, during oil crises and financial stress episodes. We also show that the oil price inflation is a crucial transmitter of spillovers to the CPI inflation of the countries under consideration, particularly to the US inflation, which, in turn, has a weak to mild influence on the paths of inflation of other countries. Additionally, the largest gross directional spillovers to other CPI inflation rates accrue to the US, while the lowest accrue to China. Finally, the oil price inflation influences the CPI inflation over the short-end of the business cycle, but much less so over the medium- to long-ends.

Item Type:Article
Full text:Publisher-imposed embargo until 25 May 2023.
(AM) Accepted Manuscript
Available under License - Creative Commons Attribution Non-commercial No Derivatives 4.0.
File format - PDF
(1284Kb)
Status:Peer-reviewed
Publisher Web site:https://doi.org/10.1016/j.eneco.2021.105332
Publisher statement:© 2021 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Date accepted:15 May 2021
Date deposited:19 May 2021
Date of first online publication:25 May 2021
Date first made open access:25 May 2023

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