| Summary: | 博士 === 淡江大學 === 美洲研究所博士班 === 106 === This dissertation aims to understand the relationship between oil price and inflation in US and examines how the oil price transits the effect on the inflation rate in US. According to the definition "Inflation is the continuous and sustained percentage change in the general level of prices in the economy", this dissertation uses Hodrick-Prescott (H-P) filter to split the series into trend and cycle to omit the price level rising by jumps. Then, we use two main separate channels to evualuate the money growth and the growh in velocity.
This research investigates the effects of oil price on inflation over the period from 1987 January to 2017 December, which consists of 691 monthly observations and 121 quarterly data. The empirical work uses both bivariate and multivariate VARs. The analyses can be split into filtered and unfiltered data, as well as exogenous and endogenous assumptions on oil prices. The bivariate VAR is applied to compare different periods and the different CPI sub-indexes to understand the effect on different CPI sub-indexes in separate times. Additionally, the multivariate VAR is implemented to measure the impact of oil price on general US price inflation, and it expands the growth or decline in the real demand for money relative to the growth of money itself.
A major difference is found between assuming endogeneity and exogeneity for oil prices. If oil is exogenous, then the channel 1 seems to favor an expectations-based explanation which means the Fed sees possible higher inflation in the future and restricts monetary growth relative to output growth. There is inflation targeting. Growth in velocity tends to inversely mirror this with a positive growth in velocity as the result.
If oil is endogenous, we find a surprising reversal. Channel 1 with money growth minus output growth becomes positively related to oil price increases. This is consistent with a Fed that is fighting recession. Higher oil prices cause reductions in growth and in response money is expanded to mitigate the recession.
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