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Monetary effects on nominal oil prices

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  • 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

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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. Ratti, Ronald A & Vespignani, Joaquin L., 2012. "Crude Oil Prices and Liquidity, the BRIC and G3 countries," MPRA Paper 44049, University Library of Munich, Germany.
  2. Alessio Anzuini & Marco J. Lombardi & Patrizio Pagano, 2012. "The impact of monetary policy shocks on commodity prices," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 851, Bank of Italy, Economic Research and International Relations Area.
  3. Ratti, Ronald A. & Vespignani, Joaquin L., 2013. "Why are crude oil prices high when global activity is weak?," Economics Letters, Elsevier, Elsevier, vol. 121(1), pages 133-136.
  4. Anton Nakov & Andrea Pescatori, 2007. "Inflation-output gap trade-off with a dominant oil supplier," Banco de Espa�a Working Papers 0723, Banco de Espa�a.
  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, Cambridge University Press, vol. 15(S3), pages 337-363, November.
  7. Alquist, Ron & Kilian, Lutz & Vigfusson, Robert J., 2011. "Forecasting the Price of Oil," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8388, C.E.P.R. Discussion Papers.
  8. 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.
  9. West, Kenneth D. & Wong, Ka-Fu, 2014. "A factor model for co-movements of commodity prices," Journal of International Money and Finance, Elsevier, Elsevier, vol. 42(C), pages 289-309.

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