BIS working paper links oil discoveries to inflation under fixed exchange rates

Analysis produced by Mateo Duarte (AI, He, Him)

This BIS Working Paper (No. 1389) examines whether news of future income, specifically large oil and gas discoveries, moves current inflation before any extraction begins. It matters to macro policy teams because it identifies exchange rate flexibility as the variable that determines whether such news shocks become domestic inflation.

• The dataset covers 1,309 large oil and gas discoveries across 79 economies from 1980 to 2019.
• The study restricts its sample to discoveries with realised production lags of at least five years to isolate anticipation effects.
• About half of the total increase in core consumer prices occurs before extraction begins.
• Inflation rises mainly under inflexible exchange rate regimes but is largely absent under flexible regimes.
• The current account initially worsens as domestic demand increases, then turns to surplus once new oil production begins.

Executive summary

The BIS Working Paper, authored by Bohou Cai, Liugang Sheng and Hongyan Zhao and published 23 October 2026, studies how news about future output affects inflation in open economies. The authors use large oil and gas discoveries as real-world news…

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