The inflationary effects of oil price changes on advanced and developing economies

Sammanfattning: The price of oil has long been viewed as an important factor in explaining inflation. This is in part due to its importance in the economy and the large fluctuations the oil price has had historically. This thesis examines the pass-through effect of changes in the oil price on inflation in two different country groups, developing and advanced economies. The role of oil in advanced and developing economies may be different due to the size and development of different sectors in the economy, as well as the reliance of oil as a source of energy production. The framework used is an expectation-augmented Phillips curve with oil prices included. The statistical methods applied is an Autoregressive distributed lags(ARDL) model and an Ordinary least squares model(OLS). The data used is yearly panel data from the period 1986 to 2020. Seven countries are included, the three countries in the developing economies group are China, Pakistan and Chile, and the four countries in the advanced economies group are France, Germany, the United Kingdom, and the United States. The results of both models indicate evidence for increases in the oil price having a higher positive impact on inflation in the developing economies group compared to the advanced economies group.