Asymmetric impacts of oil prices on inflation in Egypt : a nonlinear ARDL approach

Abstract EN

Unlike many studies that have adopted a linear approach to determine the effects of oil price changes on inflation, the present study applies a nonlinear approach to explore the asymmetric inflationary effects of positive and negative changes in oil prices.

Although the results of linear autoregressive distributive lag model (ARDL) was inconclusive in detection the existence of co-integration, the results of the nonlinear ARDL model, which considers the asymmetric relationship between variables, confirmed the existence of co-integration which means that there is a long-run equilibrium relationship between inflation, oil prices, GDP, and money supply, in the Egyptian economy during the period 1960-2017.

Results also captured short-run and long-run asymmetric impacts of oil price increases and decreases on inflation.

These results impose challenges that minimize the ability of the Central Bank of Egypt in controlling inflation rates in the short-run because changes in oil prices, which positively affecting inflation, are determined globally and outside the effective area of domestic monetary policy.