Large fluctuations in commodity prices since the 2000s are a renewed concern among policymakers about price stability. This paper investigates the effects of commodity price shocks on headline inflation with a cross-country panel. We find that the effects of commodity price shocks on inflation virtually disappear within about one year after the shock. This transitory effect suggests a low risk of a persistent second-round effect on inflation. While the effect on the price level varies across country groups, the transitory effect is fairly robust. We also allow for the possibility that the effect of commodity price shocks may vary, depending on inflation regimes. Even in this case, we observe the transitory effects at least in countries with exchange-rate flexibility.
ASJC Scopus subject areas
- Economics and Econometrics