Second-Round Effects of Oil Shocks — Implications for the Inflation Outlook in Europe

Second-Round Effects of Oil Shocks — Implications for the Inflation Outlook in Europe

Author/Editor:

Chikako Baba; Jaewoo Lee



Publication date:

September 9, 2022

Electronic access:

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Disclaimer: IMF Working Papers describe ongoing research by the author(s) and are published to elicit comment and encourage debate. The opinions expressed in IMF Working Papers are those of the authors and do not necessarily represent the views of the IMF, its Board of Directors, or IMF management.


Summary:

The transmission effects of oil price shocks on wage and consumer price inflation vary across states or the structural characteristics of an economy. The effects have diminished over time in Europe and have been greater in emerging European economies than in advanced economies. The transmission to wages was found to be higher when the prevailing level of inflation was higher or when the degrees of unionization and centralized bargaining were higher, while it was lower with greater policy credibility. monetary. The effects of oil shocks on core inflation and inflation expectations are consistent with their effects on wages.

Mary I. Bruner