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Title:Predicting inflation rates with changing oil prices / BEBR No. 545
Author(s):McMahon, Walter W.; Goodman, Douglas E.
Contributor(s):University of Illinois at Urbana-Champaign. College of Commerce and Business Administration
Subject(s):Petroleum products -- Prices.
Inflation (Finance)
Economic forecasting.
Issue Date:Feb 9 1979
Publisher:[Urbana, Ill.] : College of Commerce and Business Administration, University of Illinois at Urbana-Champaign,
Series/Report:Faculty working papers ; no. 545
Description:Includes bibliographical references (p. 17).
"This paper estimates the effect of higher crude-oil prices on the inflation rate in the U.S. It does so by estimating a price equation, within a model of wage-price interaction, that contains a term to capture the inflationary impact of crude oil prices. This term is inserted using a third degree polynomial distributed lag of four quarters that allows not only for some immediate impact on the consumer price index (e.g. through gasoline prices), but also for a delayed impact as crude oil prices affect production costs, wage rates, and eventually final goods prices. Since increase in crude oil prices appear to be a continuing source of exogenous shocks on the system, simulations are presented that estimate the net effect of these increases; in this case of the 14.5% increase announced by OPEC for 1979 on the remaining quarters in 1979 and 1980. If OPEC policies, Iranian developments, or domestic U.S. policies should raise crude oil prices by an additional 10%, the net effect is estimated to raise the inflation rate by 0.9% above what it would otherwise be."
Rights Information:In copyright. Digitized with permission of the University of Illinois Board of Trustees. Contact for information.
Copyright Feb 9 1979 Board of Trustees University of Illinois.
Date Available in IDEALS:2011-09-15
Has Version(s):
Identifier in Online Catalog:339825
OCLC Identifier:(OCoLC)ocm05341592

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