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Volume 65, Issue 4

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Propagation of Shocks to Food and Energy Prices: A Cross-Country Analysis

Pedersen, Michael

Year: 2015   Volume: 65   Issue: 4   Pages: 272-289

Abstract: The present paper analyzes the propagation of shocks to food and energy prices in 46 countries with data from the period 1999–2010. Empirical evidence suggests that in all but one country shocks to either energy or food prices propagate to prices of goods and services included in the core inflation measures. In general, the propagation effect of food price shocks is larger than that of energy price shocks. Emerging economies are more affected by propagation than are advanced ones, which is supported by analysis of variance decompositions, which suggests that especially food components explain the larger part of the variability of core inflation in emerging countries. The weights of food components in the consumer baskets seem to impact the magnitude of propagation, particularly in emerging economies. The results advocate that policymakers concerned with price stability should pay special attention to shocks affecting domestic food prices.

JEL classification: C32, E31

Keywords: propagation, inflation, shocks, cross-country

RePEc: http://ideas.repec.org/a/fau/fauart/v65y2015i4p272-289.html

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