Oil Prices, Policy Uncertainty and Asymmetries in Inflation Expectations

Journal of Economic Studies, Forthcoming

18 Pages Posted: 7 Feb 2019

See all articles by Khandokar Istiak

Khandokar Istiak

University of South Alabama - Mitchell College of Business - Department of Economics and Finance

Md Rafayet Alam

University of Tennessee, Chattanooga

Date Written: December 31, 2017

Abstract

We investigate the possible asymmetric response of inflation expectations to oil price and policy uncertainty shocks. Unlike other studies that assume symmetric effects, our study finds asymmetric effects of oil price and policy uncertainty on inflation expectations for positive and negative shocks, and for pre- and post-financial crisis periods. In particular, other things being same, a same-magnitude oil-price shock has greater effect on inflation expectations in post-crisis period than in pre-crisis period. Moreover, in post-crisis period a positive (increasing) oil-price shock has greater effect on inflation expectations than a negative (decreasing) oil price shock. We conclude that FED’s greater focus on output stabilization since financial crisis has made inflation expectations less anchored and a sudden surge in oil price may quickly trigger inflation through inflation expectations.

Keywords: Economic Policy Uncertainty, Asymmetry, Inflation Expectations, Oil Prices

JEL Classification: E3, E5

Suggested Citation

Istiak, Khandokar and Alam, Md Rafayet, Oil Prices, Policy Uncertainty and Asymmetries in Inflation Expectations (December 31, 2017). Journal of Economic Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3321290

Khandokar Istiak (Contact Author)

University of South Alabama - Mitchell College of Business - Department of Economics and Finance ( email )

College of Business and Management Studies
Mobile, AL 36688
United States

Md Rafayet Alam

University of Tennessee, Chattanooga ( email )

Department of Philosophy & Religion (#2753)
Chattanooga, TN 37403-2598
United States

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