Not a short-run noise! The low-frequency volatility of energy inflation

This paper aims to assess the low-frequency dynamics of energy inflation's volatility across a sample of six OECD advanced countries. The traditional argument attributes a transitory effect to energy inflation putting less attention on the longer-term economic consequences. Using the wavelet power spectrum, we provide evidence that most of energy inflation volatility is mainly concentrated at the frequency bands between approximately 1.5 to 5.5 years. Potentially, this result can have nontrivial consequences on how monetary policy should face changes in energy prices.

Automated summary

This paper aims to assess the low-frequency dynamics of energy inflation's volatility across a sample of six OECD advanced countries. The traditional argument attributes a transitory effect to energy inflation putting less attention on the longer-term economic consequences. Using the wavelet power spectrum, we provide evidence that most of energy inflation volatility is mainly concentrated at the frequency bands between approximately 1.5 to 5.5 years. Potentially, this result can have nontrivial consequences on how monetary policy should face changes in energy prices.