966
Serial number: 01/2018
Author(s): Vugar Ahmadov, Salman Huseynov, Peter Pedroni
Language: English
Date: January 2, 2018
Abstract: In this paper, we study oil price pass through into domestic inflation in a panel of oil exporting countries and propose a methodology to disentangle potential effects of different transmission channels. In particular, we investigate effects of three transmission channels, namely, import (cost) channel, exchange rate channel, and fiscal (demand) channel and quantify the relative importance of them. We find that the most important channel is the import channel and the least important one is the fiscal channel in contrast to wildly held belief. This finding, though surprising, can be explained by vast heterogeneity and rising integration among countries. We also find that institutional arrangements such as exchange regime, existence of fiscal rules and sovereign wealth funds are important pillars of a lower inflation environment in oil exporting countries.
Key words: Panel VAR; Oil Exporting Countries
JEL classification: C22; C23; E31
