The authors wish to thank two referees, the editor, Paul Evans, and participants in multiple seminars and conferences for many helpful comments. They are particularly thankful to John Keating for detailed comments at an early stage of the paper.
Why Don’t Oil Shocks Cause Inflation? Evidence from Disaggregate Inflation Data
Article first published online: 16 AUG 2011
© 2011 The Ohio State University
Journal of Money, Credit and Banking
Volume 43, Issue 6, pages 1165–1183, September 2011
How to Cite
BACHMEIER, L. J. and CHA, I. (2011), Why Don’t Oil Shocks Cause Inflation? Evidence from Disaggregate Inflation Data. Journal of Money, Credit and Banking, 43: 1165–1183. doi: 10.1111/j.1538-4616.2011.00421.x
- Issue published online: 16 AUG 2011
- Article first published online: 16 AUG 2011
- Received September 16, 2009; and accepted in revised form January 10, 2011.
- oil shock;
- energy intensity;
- monetary policy;
- labor intensity;
- Great Inflation
This paper uses disaggregate U.S. inflation data to evaluate explanations for the breakdown of the relationship between oil price shocks and consumer price inflation. A data set with measures of inflation, energy intensity, labor intensity, and sensitivity to monetary policy is constructed for 97 sectors that make up core CPI inflation. A comparison of the 1973–85 and 1986–2006 time periods reveals that substitution away from energy use in production and monetary policy were both important, with approximately two-thirds of the change in response of inflation to oil shocks being due to reduced energy usage, and one-third to monetary policy. We find no evidence that other factors, such as changes in wage rigidities or changes in the persistence of oil shocks, played a role.