Journal of Enterprise and Business Intelligence


A Dynamic Analysis of Oil Prices and Inflation Model and Method



Journal of Enterprise and Business Intelligence

Received On : 17 April 2021

Revised On : 20 July 2021

Accepted On : 25 August 2021

Published On : 05 October 2021

Volume 01, Issue 04

Pages : 173-181


Abstract


The study examines the impact of oil prices on inflation by applying a threshold model for five (5) ASEAN members, namely Malaysia, Indonesia, Singapore, Thailand and the Philippines. Three (3) indicators for oil price shocks are extracted in conjunction with Mork [23], Lee et al. [22] and Hamilton [13] methods. Consequently, these values are used to delineate the effect of price shock differentials. The pass-through effect is integrated into the threshold equation model. Later, the model is calculated to have an impact on inflation of high and low oil prices. The result is that the oil price shock appears to have a major impact on inflation when prices are in the high regime. This extends to all shock measures. The effective exchange rate and industrial price index (IHP) are classified as the primary determinant of inflation in all sample countries. As such, counter-cyclical monetary policy considerations should remain driven by the emerging downside risks of oil price shocks. It requires a more accommodative monetary environment to offset inflationary pressures on the domestic economy.


Keywords


Inflation; Oil Prices; Pass-Through Effect; industrial price index (IHP); Domestic economy.


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We would like to thank Reviewers for taking the time and effort necessary to review the manuscript. We sincerely appreciate all valuable comments and suggestions, which helped us to improve the quality of the manuscript.


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Cite this article


Soon Lay Ki, “A Dynamic Analysis of Oil Prices and Inflation Model and Method”, Journal of Enterprise and Business Intelligence, vol.1, no.4, pp. 173-181, October 2021. doi: 10.53759/5181/JEBI202101020.


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© 2021 Soon Lay Ki. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.