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Monetary effects on nominal oil prices

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Author Info

  • Gillman, Max
  • Nakov, Anton

Abstract

The paper presents a theory of nominal asset prices for competitively owned oil. Focusing on monetary effects, with flexible oil prices the US dollar oil price should follow the aggregate US price level. But with rigid nominal oil prices, the nominal oil price jumps proportionally to nominal interest rate increases. We find evidence for structural breaks in the nominal oil price that are used to illustrate the theory of oil price jumps. The evidence also indicates strong Granger causality of the oil price by US inflation as is consistent with the theory.

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Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 20 (2009)
Issue (Month): 3 (December)
Pages: 239-254

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Handle: RePEc:eee:ecofin:v:20:y:2009:i:3:p:239-254

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Web page: http://www.elsevier.com/locate/inca/620163

Related research

Keywords: Oil prices Inflation Cash-in-advance Multiple structural breaks Granger causality;

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References

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Citations

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Cited by:
  1. Ron Alquist & Lutz Kilian & Robert J. Vigfusson, 2011. "Forecasting the Price of Oil," Working Papers 11-15, Bank of Canada.
  2. Ratti, Ronald A & Vespignani, Joaquin L., 2012. "Crude Oil Prices and Liquidity, the BRIC and G3 countries," Working Papers 15727, University of Tasmania, School of Economics and Finance, revised 17 Dec 2012.
  3. Anzuini, Alessio & Lombardi, Marco J. & Pagano, Patrizio, 2010. "The impact of monetary policy shocks on commodity prices," Working Paper Series 1232, European Central Bank.
  4. Ratti, Ronald A. & Vespignani, Joaquin L., 2013. "Why are crude oil prices high when global activity is weak?," Economics Letters, Elsevier, vol. 121(1), pages 133-136.
  5. Ratti, Ronald A. & Vespignani, Joaquin L., 2013. "Liquidity and crude oil prices: China's influence over 1996–2011," Economic Modelling, Elsevier, vol. 33(C), pages 517-525.
  6. Kilian, Lutz & Vigfusson, Robert J., 2011. "Nonlinearities In The Oil Price–Output Relationship," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 337-363, November.
  7. Anton Nakov & Andrea Pescatori, 2007. "Inflation-output gap trade-off with a dominant oil supplier," Working Paper 0710, Federal Reserve Bank of Cleveland.
  8. West, Kenneth D. & Wong, Ka-Fu, 2014. "A factor model for co-movements of commodity prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 289-309.
  9. Benhmad, François, 2012. "Modeling nonlinear Granger causality between the oil price and U.S. dollar: A wavelet based approach," Economic Modelling, Elsevier, vol. 29(4), pages 1505-1514.

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