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Dynamic Effects of Raw Materials Price Shocks for Large Oil-Dependent Economies

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Author Info
Wohltmann, Hans-Werner
Winkler, Roland

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Abstract

The paper analyzes the dynamic effects of anticipated price increases of imported raw materials upon two large open economies. It is assumed that the economies have an asymmetric macroeconomic structure on the supply side and are dependent upon a small third country for oil or raw materials imports. The dynamic behavior of several macroeconomic variables is discussed under alternative scenarios. We first assume that oil is priced in dollars. Thereafter, we investigate the impacts of oil price shocks on the domestic and the foreign economy if oil imports are denominated in terms of domestic currency (Euro) rather than US dollars. It is shown that with domestic- currency denominated oil the stagflationary effects of oil price increases upon both the domestic and foreign economy are reduced. The paper also discusses several monetary policy responses to oil price shocks. --

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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2005,01.

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Date of creation: 2005
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Handle: RePEc:zbw:cauewp:2880

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Web page: http://www.wiso.uni-kiel.de/econ/

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Related research
Keywords: oil price shocks; international policy coordination; time inconsistency; currency denomination;

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Find related papers by JEL classification:
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization

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  7. Fukuda, Shin-ichi, 1993. "International transmission of monetary and fiscal policy : A symmetric N-country analysis with union," Journal of Economic Dynamics and Control, Elsevier, vol. 17(4), pages 589-620, July. [Downloadable!] (restricted)
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  14. Devereux, Michael B. & Purvis, Douglas D., 1990. "Fiscal policy and the real exchange rate," European Economic Review, Elsevier, vol. 34(6), pages 1201-1211, September. [Downloadable!] (restricted)
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  15. Manasse, Paolo, 1991. "Fiscal Policy in Europe: The Credibility Implications of Real Wage Rigidity," Oxford Economic Papers, Oxford University Press, vol. 43(2), pages 321-39, April. [Downloadable!] (restricted)
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  18. Clausen, Volker & Wohltmann, Hans-Werner, 2005. "Monetary and fiscal policy dynamics in an asymmetric monetary union," Journal of International Money and Finance, Elsevier, vol. 24(1), pages 139-167, February. [Downloadable!] (restricted)
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