A replication study on “Revisiting the linkages between oil prices and macroeconomy for the euro area: Does energy inflation still matter?”

Abstract

This study presents a replication and critical assessment of Jawadi et al. (2023), which explores the relationship between oil prices and the macroeconomy of the Eurozone. A key conclusion of their study is that monetary policy has limited effectiveness in mitigating the effects of energy inflation, leading to a recommendation for additional fiscal measures. Our replication identifies several methodological and empirical inconsistencies that may affect the validity of the reported findings. These include potential violations of theoretical principles, challenges in empirical interpretation, and concerns regarding model specification and estimation. For instance, some lagged dependent variable coefficients exceed one, suggesting possible stationarity issues, as certain non-stationary variables appear to have been treated as stationary. Additionally, residual diagnostics for both linear and nonlinear regression models indicate departures from standard assumptions, such as non-normality, autocorrelation, and heteroscedasticity, which may influence the reliability of the results. While Jawadi et al. (2023) report a minimal impact of monetary policy, our analysis suggests that the European Central Bank (ECB) rate plays a more substantial role in economic growth dynamics, particularly during periods of significant oil price fluctuations. These findings indicate that the role of monetary policy in addressing energy inflation may warrant further consideration.