Abstract
We examine whether inflation regimes matter for the size of second-round effects of positive oil price inflation shocks to consumer price inflation via the growth of unit labour costs (ULC) channel. The size of the impact of ULC on inflation is smaller in the low inflation regime compared to that in the high inflation regime. The magnitude of the impact in the high inflation regimes is at least five times larger than that in the low inflation regime. The positive oil price inflation shock raises the correlation between ULC and inflation more in the high inflation regime compared to that in the low regime. Evidence from counterfactual analysis shows, the ULC channels amplify the second-round effects of oil price inflation shocks more in high inflation regime than in the low inflation regime.
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Ndou, E., Gumata, N., Tshuma, M.M. (2019). Do Inflation Regimes Matter for the Sizes of Second-Round Effects of Oil Price Shocks to Consumer Price Inflation via the Unit Labour Costs Channel?. In: Exchange Rate, Second Round Effects and Inflation Processes. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-13932-2_6
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DOI: https://doi.org/10.1007/978-3-030-13932-2_6
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Publisher Name: Palgrave Macmillan, Cham
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Online ISBN: 978-3-030-13932-2
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