An Empirical Note on the Impact of the Price of Imported Crude Oil on Inflation in the United Kingdom

Cebula, Richard and McGrath, Richard and Saadatmand, Yassamand and Toma, Michael (2001): An Empirical Note on the Impact of the Price of Imported Crude Oil on Inflation in the United Kingdom. Published in: The Journal of American Academy of Business, Cambridge , Vol. 2, No. 1 (30 September 2002): pp. 115-117.

Abstract

This study empirically investigates whether the assumption by the Bank of England that rising prices of imported crude oil lead to domestic inflation in the United Kingdom has had validity. In a model where real GDP growth and money stock growth are both all allowed for, empirical estimation reveals compelling evidence for the validity of this assumption. In particular, the greater the percentage increase in imported crude oil prices, the greater the domestic inflation rate. In addition, oil shocks involving imported crude oil price hikes of 40 percent or more in a given year further elevate the domestic inflation rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: inflation; imported crude oil; oil price shocks
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q37 - Issues in International Trade

References

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Cebula, R.J., and Frewer, M. (1980). “Oil Imports and Inflation: An Empirical International Analysis of the ‘Imported Inflation’ Thesis”, Kyklos, 33, 615-622.

Council of Economic Advisors. (2001). Economic Report of the President, 2001, Washington, D.C.: U.S. Government Printing Office.

White, H. (1980). “A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity”, Econometrica, 48, 817-838.