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1 – 1 of 1Oluwasegun Babatunde Adekoya and Anthony Noah Adebiyi
This paper aims to assess the relationship between oil price and inflation in the Organization for Economic Co-operation and Development (OECD) countries. This paper contributes…
Abstract
Purpose
This paper aims to assess the relationship between oil price and inflation in the Organization for Economic Co-operation and Development (OECD) countries. This paper contributes to knowledge in a number of ways.
Design/methodology/approach
First, we carry out a comparative analysis between the developed and developing countries of the OECD. Second, we check if the global financial crisis (GFC) of 2008 altered the oil price–inflation relationship. We further extend our analysis to capture asymmetries using the non-linear autoregressive distributed lag model. Lastly, we use the Campbell and Thompson (2008) forecast evaluation test to comparatively assess the predictive ability of the symmetric (restricted) and asymmetric (unrestricted) models.
Findings
Our results show that asymmetries matter in the oil price–inflation nexus. Also, the effect of the GFC of 2008 is stronger for the developed countries in the short run, and the developing countries in the long run. Lastly, accounting for asymmetries in oil price yields a better forecast for inflation in both groups.
Originality/value
The paper adds some interesting innovations to the oil price–inflation relationship in the OECD countries. It is the study with the widest scope for such country group under two classifications of developed and developing countries. It also inculcates the role of asymmetries, financial crisis, as well as the predictive ability of oil price on inflation.
Details