Page 21 - Invited Paper Session (IPS) - Volume 2

IPS178 Sana Antoine S. J.
that the transportation item which is directly impacted by the price of
fuel, the direct effects of oscillations in oil prices explains 49.8% of the
volatility of headline CPI. This result confirms that imported inflation,
in particular the one due to variations in world oil prices, is the main
driver of headline CPI inflation in Lebanon.

Figure 4: average components contributions to inflation between 2012 and
2018

As opposed to the sectorial analysis, the econometric model quantifies
the impact of external factors regardless of the sectors through which these
shocks are transmitted. Consequently, the second approach complements and
provides a robustness check to our initial results. The estimation of the linear
model using the log-differenced headline CPI as the explained variable yields
the following result:
Coefficients:
Estimate Std. Error t value Pr(>|t|)
(Intercept) 0.016152 0.004957 3.258 0.00148 **
diff(log(m3), lag = 12) 0.104585 0.054642 1.914 0.05813 .
diff(log(wair), lag = 12) 0.074915 0.030839 2.429 0.01669 *
diff(log(brent), lag = 12) 0.045214 0.005968 7.576 1.02e-11 ***
diff(log(exr), lag = 12) -0.027909 0.025065 -1.113 0.26784
dummy 0.069336 0.005625 12.326 < 2e-16 ***
---
Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Residual standard error: 0.01825 on 114 degrees of freedom
Multiple R-squared: 0.6828, Adjusted R-squared: 0.6689
F-statistic: 49.08 on 5 and 114 DF, p-value: < 2.2e-16

The Brent price is clearly highly significant and confirms that the world oil
prices are a major driver of Lebanese inflation. The model estimates that a 1%

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