Time-Frequency Analysis of Oil price and its Volatility Pass-Through into Inflation in Iran

Document Type : Original Article

Authors

1 MA in Economics, Faculty of Social Sciences, Economics and Accounting, Razi University, Kermanshah, Iran

2 Associate Professor of Economics, Faculty of Social Sciences, Economics and Accounting, Razi University, Kermanshah, Iran

10.48308/jem.2025.236195.1929

Abstract

One of the characteristics of oil-exporting countries like Iran is the dependence of the economic structure on the income from oil exports, which causes the Iranian economy to be affected by the conditions of recession or boom prevailing on the world economy. In this case, extreme oil price fluctuations can affect inflation. In this research, the time-frequency characteristics of the oil price-inflation relationship and oil price-inflation volatility with wavelet analysis approach and monthly data are investigated for the period 1980-2020. The results show that there is a positive, in-phase and significant coherence between inflation and oil prices in the short term. However, in some years, a negative and out-of-phase correlation has been established, so that with the passage of time and in the medium and long term, the coherence between the two series has disappeared. Also, there is a positive and significant correlation between inflation and oil price volatility and by controlling the effect of liquidity growth, the correlation of oil price and oil price volatility with inflation has intensified. Therefore, it is suggested to reduce the country's dependence on oil revenues to the minimum possible amount.

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Journal of Economics and Modelling
Volume 15, Issue 2 - Serial Number 58
September 2024
Pages 95-120

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