Working Paper Series no. 523: How do oil price forecast errors impact inflation forecast errors? An empirical analysis from French and US inflation forecasts

Abstract

This paper proposes an empirical investigation of the impact of oil price forecast errors on inflation forecast errors for two different sets of recent forecasts data: the median of SPF inflation forecasts for the U.S. and the Central Bank inflation forecasts for France. Mainly two salient points emerge from our results. First, there is a significant contribution of oil price forecast errors to the explanation of inflation forecast errors, whatever the country or the period considered. Second, the pass-through of oil price forecast errors to inflation forecast errors is multiplied by around 2 when the oil price volatility is large.

Frédérique Bec and Annabelle De Gaye
November 2014

Classification JEL : C22, E31, E37

Keywords : Forecast errors, Inflation rate, Oil price, Threshold model