The Non-Linear Effects of Oil Revenues on Inflation in OPEC Countries Using the Threshold Approach

Oil revenues constitute the major part of export revenues in OPEC countries. In regard to this fact that prices in oil markets have been very so swinging in the past four decades,identifying manner and severity of affecting oil revenues on inflation for economic policy making is very important. Topic of this paper is" The nonlinear effects of oil revenues on inflation in OPEC countries". We have used panel data during the 1983-2006 for OPEC countries in the research. The way which is applied for estimation is"Threshold error correction model". Estimations show that the oil revenue increase is significantly inflationary, and when oil revenue increase is upper than 45 percent threshold level, its effect on inflation will be more severe. This result confirms the main hypothesis of this research which asserts that relation between inflation and oil revenues is positive and nonlinear.