The Reasons Behind Asymmetric Responses of Inflation to an Oil Price Shock Across the EU Members
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How to Cite

Ivantsou, V. (2014). The Reasons Behind Asymmetric Responses of Inflation to an Oil Price Shock Across the EU Members. Economic and Political Thought, 46(3). Retrieved from https://mysl.lazarski.pl/mysl/article/view/1784

Abstract

In this article, I have analysed the impact of an oil price shock on major EU
economies and explained the reasons responsible for asymmetric responses
of inflation across members studied. The results of the study have much in
common with other similar research, however several findings still need to be
cited. First, oil intensity of the economy is not the main determinant of the
impact’s strength across the EU members. It is due to the fact that companies
observed a substantial decrease in the relative oil usage in the production
process during past 30 years. This, together with low inflationary environment
and increased level of competition makes the adjustment of product prices
to the increased price of oil negligible and sometimes too costly. Second,
the direct effect and consequently weight of fuel in HCPI is responsible
for a significant share of cross-country differences. My study finds a strong
relation between the strength of the impact and HCPI’s structure, suggesting
that the pass-through is crucially dependent upon the households’ relative
spending on fuels. Third, second-round effects cause another noticeable share
of differences across the EU members. Their strength is strongly correlated
with the level of bargaining power employees have, supporting the initial
hypothesis. In addition, the degree to which the effect of oil price shock is
scattered over time is also affected by labour market flexibility level. Finally,
the pass-through coefficients are relatively small, supporting Blanchard’s
(2007) findings, which state that the effects of oil price change on inflation
have become relatively mild, compared to the 1960–1970s period.

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