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Oil price shocks and monetary policy in a data-rich environment

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  • Knut Are Aastveit

    ()
    (Norges Bank (Central Bank of Norway) and the University of Oslo)

Abstract

This paper examines the impact of different types of oil price shocks on the U.S. economy, using a factor-augmented VAR (FAVAR) approach. The results indicate that when examining the effects of oil price shocks, it is important to account for the interaction between the oil market and the macroeconomy. I find that oil demand shocks are more important than oil supply shocks in driving several macroeconomic variables, and that the origin of demand shocks matter. Specifically, the U.S. economy and monetary policy respond differently to global demand shocks that have the effect of raising the price of oil and to oil-specific demand shocks.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2013/WP-201310/
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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2013/10.

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Length: 48 pages
Date of creation: 03 Apr 2013
Date of revision:
Handle: RePEc:bno:worpap:2013_10

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Related research

Keywords: Oil demand shocks; Oil supply shocks; Business cycle; Monetary policy; Factor model; FAVAR;

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Cited by:
  1. Knut Are Aastveit & Hilde C. Bjørnland & Leif Anders Thorsrud, 2012. "What drives oil prices? Emerging versus developed economies," Working Papers 0007, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
  2. Knut Are Aastveit & Hilde C. Bjørnland & Leif Anders Thorsrud, 2011. "The world is not enough! Small open economies and regional dependence," Working Paper 2011/16, Norges Bank.
  3. Melolinna, Marko, 2012. "Macroeconomic shocks in an oil market var," Working Paper Series 1432, European Central Bank.

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