Advanced Search
MyIDEAS: Login

Oil shocks, monetary policy, and economic activity

Contents:

Author Info

  • Michael Dotsey
  • Max Reid
Registered author(s):

    Abstract

    Various reasons have been given to explain downturns in U.S. economic activity since World War II. Romer and Romer (1989) argued that these recessions were primarily associated with monetary contractions, while Hamilton (1983) and others attributed them to oil price increases. We investigate these competing hypotheses and find that when measures of oil prices are included, the Romers’ measure of monetary policy does not significantly explain economic downturns. However, alternative measures of monetary policy, specifically the federal funds rate the spread between the ten-year Treasury rate and the federal funds rate, are significantly linked to economic activity. We also find that Hamilton’s result that oil prices significantly influence real activity are robust to the inclusion of these alternative indicators of monetary policy.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.richmondfed.org/publications/research/economic_review/1992/pdf/er780402.pdf
    Download Restriction: no

    Bibliographic Info

    Article provided by Federal Reserve Bank of Richmond in its journal Economic Review.

    Volume (Year): (1992)
    Issue (Month): Jul ()
    Pages: 14-27

    as in new window
    Handle: RePEc:fip:fedrer:y:1992:i:jul:p:14-27:n:v.78no.4

    Contact details of provider:
    Web page: http://www.richmondfed.org/
    More information through EDIRC

    Order Information:
    Email:
    Web: http://www.richmondfed.org/publications/

    Related research

    Keywords: Petroleum industry and trade ; Monetary policy ; Economic conditions;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Leeper, Eric M., 1997. "Narrative and VAR approaches to monetary policy: Common identification problems," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 641-657, December.
    2. Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
    3. Robert A. Amano & Simon van Norden, 1995. "Oil Prices and the Rise and Fall of the U.S. Real Exchange Rate," International Finance 9502001, EconWPA.
    4. Min, Hong-Ghi & Lee, Duk-Hee & Nam, Changi & Park, Myeong-Cheol & Nam, Sang-Ho, 2003. "Determinants of emerging-market bond spreads: Cross-country evidence," Global Finance Journal, Elsevier, vol. 14(3), pages 271-286, December.
    5. Apergis, Nicholas & Miller, Stephen, 2004. "Macroeconomic rationality and Lucas' misperceptions model: further evidence from 41 countries," Journal of Economics and Business, Elsevier, vol. 56(3), pages 227-241.
    6. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    7. Mary G. Finn, 1994. "Variance properties of Solow's productivity residual and their cyclical implications," Working Paper 94-01, Federal Reserve Bank of Richmond.
    8. Charles X. Hu, 1999. "Leverage, monetary policy, and firm investment," Economic Review, Federal Reserve Bank of San Francisco, pages 32-39.
    9. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 195-213, October.
    10. Cameron, Ken & Schnusenberg, Oliver, 2009. "Oil prices, SUVs, and Iraq: An investigation of automobile manufacturer oil price sensitivity," Energy Economics, Elsevier, vol. 31(3), pages 375-381, May.
    11. Jeffrey A. Miron & Christina D. Romer & David N. Weil, 1994. "Historical Perspectives on the Monetary Transmission Mechanism," NBER Chapters, in: Monetary Policy, pages 263-306 National Bureau of Economic Research, Inc.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fip:fedrer:y:1992:i:jul:p:14-27:n:v.78no.4. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (William Perkins).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.