Inflation Responses to Commodity Price Shocks - How and Why Do Countries Differ?
33 Pages Posted: 1 Nov 2012
Date Written: September 2012
Abstract
This paper relates the inflationary impact of commodity price shocks across countries to a broad range of structural characteristics and policy frameworks over the period 2001-2010, using several approaches. The analysis suggests that economies with higher food shares in CPI baskets, fuel intensities, and pre-existing inflation levels were more prone to experience sustained inflationary effects from commodity price shocks. Countries with more independent central banks and higher governance scores seem to have contained the impact of these shocks better. The effect of the presence of inflation targeting regimes, however, appears very modest and not evident during the 2008 food price shock. The evidence suggests that trade openness, financial development, dollarization, and labor market flexibility do not significantly influence the way in which domestic inflation responds to international commodity price shocks.
Keywords: Commodity Prices, Pass-through, Phillips Curve, External Shocks, Governance, Inflation Targeting
JEL Classification: E31, F41, E50, E52, E60
Suggested Citation: Suggested Citation
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