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Monetary effects on nominal oil prices

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  • Max Gillman

    ()
    (Cardiff University Business School)

  • Anton Nakov

    ()
    (Banco de España)

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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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/09/Fic/dt0928e.pdf
File Function: First version, December 2009
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0928.

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Length: 37 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:bde:wpaper:0928

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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. Ron Alquist & Lutz Kilian & Robert J. Vigfusson, 2011. "Forecasting the price of oil," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1022, Board of Governors of the Federal Reserve System (U.S.).
  3. Ratti, Ronald A. & Vespignani, Joaquin L., 2012. "Liquidity and Crude Oil Prices: China’s Influence Over 1996-2011," MPRA Paper 48900, University Library of Munich, Germany.
  4. 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.
  5. Ratti, Ronald A & Vespignani, Joaquin L., 2012. "Why are crude oil prices high when global activity is weak?," MPRA Paper 43777, University Library of Munich, Germany.
  6. Benhmad, François, 2012. "Modeling nonlinear Granger causality between the oil price and U.S. dollar: A wavelet based approach," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1505-1514.
  7. 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.
  8. Anton Nakov & Andrea Pescatori, 2007. "Inflation-output gap trade-off with a dominant oil supplier," Banco de Espa�a Working Papers, Banco de Espa�a 0723, Banco de Espa�a.
  9. Kilian, Lutz & Vigfusson, Robert J., 2011. "Nonlinearities in the Oil Price-Output Relationship," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8174, C.E.P.R. Discussion Papers.

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