This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

How Should Monetary Policy Respond to Exogenous Changes in the Relative Price of Oil?

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
MICHAEL PLANTE () (Indiana University, Ball State University)
Abstract

This paper examines welfare maximizing optimal monetary policy and simple mon- etary policy rules in a New Keynesian model that incorporates oil as an intermediate input and as a consumption good. I show under several dierent assumptions that the optimal policy focuses on stabilizing some combination of nominal wage and core ination while allowing for signicant movements in value added and CPI (headline) in- ation. Wage indexation to headline ination does not change this result. The optimal response of the nominal rate is sensitive to the assumptions of the model. For all cases examined the optimal policy is well approximated, in welfare terms, by a simple policy rule that suciently stabilizes core ination. Empirical evidence using data from after 1986 supports the hypothesis that the Federal Reserve has been responding to real oil price changes in a manner similar to what the model says is optimal.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.iub.edu/~caepr/RePEc/PDF/2009/CAEPR2009-013.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2009-013.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 46 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:inu:caeprp:2009-013

Contact details of provider:
Email:
Web page: http://www.iub.edu/~caepr
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Stephanie Bennett).

Related research
Keywords:

This paper has been announced in the following NEP Reports:

Statistics
Access and download statistics

Did you know? There are NEP reports in over 80 fields that deliver new research to your email.

This page was last updated on 2009-12-17.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.