Inflation in motion: the effect of fuel prices on a dollarized economy, the case of Ecuador
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Published:
Jun 30, 2025
Keywords:
Commodities Prices, Inflation Pass-Through, Local Projection
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Abstract
This paper examines the influence of fuel prices on inflation in Ecuador since 2015. Since 2018, Ecuador has implemented a series of measures on fuel prices, some linked to increased margins or liberalization through
a banding system. This rise in fuel prices has had a significant effect on inflation directly related to transportation and has also spilled over into other inflation components. The study uses local projection methodology to assess the magnitude and duration of these price changes. The results indicate that the increase in WTI fuel prices had a significant, asymmetric impact on inflation—specifically, a positive WTI shock raises inflation, while a decrease does not have a comparable effect. We also identified additional transmission effects of diesel prices on transportation services.
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Yaselga Alvarado, E. D., & Bunce, A. (2025). Inflation in motion: the effect of fuel prices on a dollarized economy, the case of Ecuador. Cuestiones Económicas, 35(1), Autores: Emanuel Yaselga y Alan Bunce. https://doi.org/10.47550/35.1.2
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Artículos de Investigación
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
References
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Taylor, J. B. (2000). Low Inflation, Pass-Through, and the Pricing Power of Firms. European Economic Review, 44 (7).
Baumeister, C., & Kilian, L. (2014). Do Oil Price Increases Cause Higher Food Prices? Economic Policy, 29 (80).
Blinder, A. S. (1982). The Anatomy of Double-Digit Inflation in the 1970s. En Inflation: Causes and Effects . University of Chicago Press.
Borio, C. E., & Filardo, A. J. (2007). Globalisation and Inflation: New Cross-Country Evidence on the Global Determinants of Domestic Inflation.
Canova, F., Ortega, E., & Ciccarelli, M. (2004). Similarities and Convergence in G-7 Cycles .
Carrière-Swallow, Y., Deb, P., Furceri, D., Jimenez, D., & Ostry, J. D. (2023). Shipping Costs and Inflation. Journal of International Money and Finan – ce , 130.
Capistrán, C., & Ramos‐Francia, M. (2009). Inflation Dynamics in Latin America. Contemporary Economic Policy, 27 (3), 349–362.
Cecchetti, S. G., & Moessner, R. (2008). Commodity Prices and Inflation Dynamics. BIS Quarterly Review.
Ciccarelli, M., & Mojon, B. (2005). Global Inflation (No. 537). ECB Working Paper.
Cody, B. J., & Mills, L. O. (1991). The Role of Commodity Prices in Formu - lating Monetary Policy. The Review of Economics and Statistics, 73 (2).
Durevall, D., Loening, J. L., & Birru, Y. A. (2013). Inflation Dynamics and Food Prices in Ethiopia. Journal of development economics , 104.
Forni, M., Hallin, M., Lippi, M., & Reichlin, L. (2000). The Generalized Dyna - mic-Factor Model: Identification and Estimation. The Review of Economics and Statistics , 82 (4), 540–554.
Gachet, I., Maldonado, D., & Pérez, W. (2008). Determinantes de la inflación en una economía dolarizada: El caso ecuatoriano. Banco Central del Ecuador, Cuestiones Económicas, 24 (1), 5–26.
Garner, C. A. (1985). Commodity Prices and Monetary Policy Reform. Economic Review, 70, Federal Reserve Bank of Kansas City.
Garratt, A., & Petrella, I. (2022). Commodity Prices and Inflation Risk. Journal of Applied Econometrics, 37 (2). Inflación en movimiento: efecto del precio de los combustibles en una economía dolarizada, caso de Ecuador 72 Emanuel Yaselga Alan Bunce
Gordon, Robert (1975). The Demand for and Supply of Inflation. Journal of Law and Economics: Vol. 18: No. 3, Article 22. https://chicagounbound. chicago.edu/jle/vol18/iss3/22
Hamilton, J. D. (1996), “This is What Happened to the Oil Price–Macroeco-nomy Relationship,” Journal of Monetary Economics, 38, 215–220.
Jarque, C. M., & Bera, A. K. (1987). A Test for Normality of Observations and Regression Residuals. International Statistical Review / Revue Internationale de Statistique, 55(2), 163–172. https://doi.org/10.2307/1403192 Johansen, S. (1995). Likelihood Based Inference in Cointegrated Vector Auto - regressive Models. Oxford: Oxford University Press. Journal of Money Credit and Banking, 10.
Jordà, Ò. (2005). Estimation and Inference of Impulse Responses by Local Projections. American Economic Review 95 (1).
Kilian, L., and R.J. Vigfusson (2011), “Nonlinearities in the Oil Price-Output Relationship,” Macroeconomic Dynamics, 15, 337-363.
Kose, M. A., Otrok, C., & Whiteman, C. H. (2003). International Business Cycles: World, Region, and Country-Specific Factors. American Economic Review, 93 (4), 1216–1239.
Kugler, P. (1991). Common Trends, Commodity Prices and Consumer Prices. Economics Letters, 37 (4), 345–349.
Levin, A. T., & Piger, J. (2003). Is Inflation Persistence Intrinsic in Industrial Economies?
Mork, K.A. (1989), “Oil and the Macroeconomy. When Prices Go Up and Down: An Extension of Hamilton’s Results,” Journal of Political Economy, 97, 740‐744.
Orphanides, A., Small, D. H., Wieland, V., & Wilcox, D. W. (1997). A Quantitative Exploration of the Opportunistic Approach to Disinflation. Board of Governors of the Federal Reserve System and Econ. Disc. Series , 97-36.
Primicias. (2019). Demanda de gasolina Súper cae 38,32% tras la eliminación del subsidio. https://www.primicias.ec/noticias/economia/demanda-gasolina-super-subsidio-petroecuador/
Ramey, V. A. (2012). Comment on Roads to Prosperity or Bridges to Nowhere? Theory and Evidence on the Impact of Public Infrastructure Investment. En NBER Macroeconomics Annual 2012, Volume 27 (pp. 147–153). National Bureau of Economic Research.
Rizvi, S. A. R., & Sahminan, S. (2020). Commodity Price and Inflation Dynamics: Evidence from BRIICS. Bulletin of Monetary Economics and Banking, 23 (4), 485–500.
Rogoff, K. (2003). Globalization and Global Disinflation. Economic Review–Federal Reserve Bank of Kansas City, 88 (4), 45–80.
Romer, C., & Romer, D. (2010). The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks. American Economic Review, 100, 763–801.
Schaffitzel, F., Jakob, M., Soria, R., & Vogt-Schilb, A. (2019). Can Government Transfers Make Energy Subsidy Reform Socially Acceptable? A Case Study on Ecuador . Inter-American Development Bank. http://dx.doi.org/10.18235/0001740
Taylor, J. B. (2000). Low Inflation, Pass-Through, and the Pricing Power of Firms. European Economic Review, 44 (7).