Oil shocks and the zero bound on nominal interest rates
AbstractBeginning in 2009, in many advanced economies, policy rates reached their zero lower bound (ZLB). Almost at the same time, oil prices started rising again. We analyze how the ZLB affects the propagation of oil shocks. As these shocks move inflation and output in opposite directions, their effects on economic activity are cushioned when monetary policy is constrained. The burst of inflation from an oil price increase lowers real interest rates at the ZLB and stimulates the interest-sensitive component of GDP, offsetting the usual contractionary effects. In fact, if the increase in oil prices is gradual, the persistent rise in inflation can cause a GDP expansion.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1009.
Date of creation: 2010
Date of revision:
Other versions of this item:
- Bodenstein, Martin & Guerrieri, Luca & Gust, Christopher J., 2013. "Oil shocks and the zero bound on nominal interest rates," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 941-967.
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-27 (All new papers)
- NEP-CBA-2010-11-27 (Central Banking)
- NEP-ENE-2010-11-27 (Energy Economics)
- NEP-MAC-2010-11-27 (Macroeconomics)
- NEP-MON-2010-11-27 (Monetary Economics)
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- Luca Guerrieri & Matteo Iacoviello & Raoul Minetti, 2012.
"Banks, Sovereign Debt and the International Transmission of Business Cycles,"
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