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: Suggested Citation