We gratefully acknowledge helpful comments from a referee. The views expressed herein are solely those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
Time Variation in the Inflation Passthrough of Energy Prices
Article first published online: 6 SEP 2010
© 2010 The Ohio State University
Journal of Money, Credit and Banking
Volume 42, Issue 7, pages 1419–1433, October 2010
How to Cite
CLARK, T. E. and TERRY, S. J. (2010), Time Variation in the Inflation Passthrough of Energy Prices. Journal of Money, Credit and Banking, 42: 1419–1433. doi: 10.1111/j.1538-4616.2010.00347.x
- Issue published online: 6 SEP 2010
- Article first published online: 6 SEP 2010
- Received February 3, 2009; and accepted in revised form January 25, 2010.
- oil price shocks;
- core inflation;
- time-varying parameters
From Bayesian estimates of a vector autoregression that allows for both coefficient drift and stochastic volatility, we obtain the following three results. First, beginning in approximately 1975, the responsiveness of core inflation to changes in energy prices in the United States fell rapidly and remains muted. Second, this decline in the passthrough of energy inflation to core prices has been sustained through a recent period of markedly higher volatility of shocks to energy inflation. Finally, reduced energy inflation passthrough has persisted in the face of monetary policy that became less responsive to energy inflation starting around 1985.