How Do Oil Price Forecast Errors Impact Inflation Forecast Errors? An Empirical Analysis from French and US Inflation Forecasts

37 Pages Posted: 29 Nov 2014

Date Written: November 2014

Abstract

This paper proposes an empirical investigation of the impact of oil price forecast errors on inflation forecast errors for two different sets of recent forecasts data: the median of SPF inflation forecasts for the U.S. and the Central Bank inflation forecasts for France. Mainly two salient points emerge from our results. First, there is a significant contribution of oil price forecast errors to the explanation of inflation forecast errors, whatever the country or the period considered. Second, the pass-through of oil price forecast errors to inflation forecast errors is multiplied by around 2 when the oil price volatility is large.

Keywords: Forecast errors, Inflation rate, Oil price, Threshold model

JEL Classification: C22, E31, E37

Suggested Citation

Bec, Frederique and de Gaye, Annabelle, How Do Oil Price Forecast Errors Impact Inflation Forecast Errors? An Empirical Analysis from French and US Inflation Forecasts (November 2014). Banque de France Working Paper No. 523, Available at SSRN: https://ssrn.com/abstract=2531323 or http://dx.doi.org/10.2139/ssrn.2531323

Frederique Bec (Contact Author)

Banque de France ( email )

Paris
France

Annabelle De Gaye

Banque de France ( email )

Paris
France

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