The impact of change in oil price on different CPI categories in Lebanon

Abstract

In this thesis we investigate the impact of change in oil price on the change of the total consumer price index (CPI) and on the change of different CPI expenditure categories using a vector autoregressive (VAR) model. The examined CPI expenditure categories are 1) clothing and footwear; 2) water, electricity, gas and other fuels; and 3) health. We start by applying the VAR model then proceed to execute the Granger causality test, the impulse response and finally the variance decomposition. The main findings in this thesis suggest first that the change in oil price does not Granger cause any of the variables in consideration except for the CPI expenditure category water, electricity, gas and other fuels. Second, we find that by applying a positive shock to the change in oil price, the water, electricity, gas and other fuels category has a positive and significant response which lasts for 2 months. Third, the variance decomposition shows that shocks in oil prices account for 34.5percent of the variation in water, electricity, gas and other fuels.