Oil prices and inflation in the euro area and its main countriesGermany, France, Italy and Spain

Abstract

There is no consensus in the literature about the effects of oil price increases in inflation. Variations in oil prices do not need to hit all the economies in a similar way as some countries and sectors may be more dependent or efficient in the use of oil than others. We propose a disaggregated approach to identify the economic sectors where there is a loss of competitiveness due to oil price shocks. To characterize these effects we use multivariate transfer function models with oil and other commodity prices and measures of the demand pressures as inputs at the highest level of disaggregation in the non-administered harmonized consumer prices indices for the euro area and its four largest economies: Germany, France, Italy and Spain. We also address non linearity issues by taking into account asymmetric effects regarding large positive variations of oil prices.