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Anticipated Raw Materials Price Shocks and Monetary Policy Response - A New Keynesian Approach

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Author Info
Winkler, Roland
Wohltmann, Hans-Werner

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Abstract

The paper analyzes the dynamic effects of anticipated raw materials price increases for small open oil-dependent economies and investigates the con- sequences of several monetary policy rules in response to commodity price shocks. Based on a calibrated New Keynesian open economy model the analysis shows that anticipated increases in the price of oil will involve oil- dependent economies both in temporary inflation and deflation as well as in output expansion and contraction. Compared to an interest rate Taylor rule a money growth rule is more appropriate to reduce the volatility of the CPI inflation rate whereas just the opposite holds for stabilizing the output gap. --

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Publisher Info
Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2006,19.

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Date of creation: 2006
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Handle: RePEc:zbw:cauewp:5175

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

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Related research
Keywords: Oil price shocks; Monetary Policy; Open Economy;

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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  1. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February. [Downloadable!] (restricted)
    Other versions:
  2. Rotemberg, Julio J & Woodford, Michael, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 550-77, November.
    Other versions:
  3. Kim, In-Moo & Loungani, Prakash, 1992. "The role of energy in real business cycle models," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 173-189, April. [Downloadable!] (restricted)
    Other versions:
  4. Gali, Jordi & Gertler, Mark & David Lopez-Salido, J., 2005. "Robustness of the estimates of the hybrid New Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1107-1118, September. [Downloadable!] (restricted)
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  5. Bhandari, Jagdeep S., 1981. "The simple macroeconomics of an oil-dependent economy," European Economic Review, Elsevier, vol. 16(2), pages 333-354. [Downloadable!] (restricted)
  6. Hamilton, James D & Herrera, Ana Maria, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 265-86, April.
  7. Ana Maria Herrera & James Hamilton, 2001. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy," University of California at San Diego, Economics Working Paper Series 2001-10, Department of Economics, UC San Diego. [Downloadable!]
  8. Bhandari, Jagdeep S. & Turnovsky, Stephen J., 1984. "Materials price increases and aggregate adjustment in an open economy : A Stochastic Approach," European Economic Review, Elsevier, vol. 25(2), pages 151-182, July. [Downloadable!] (restricted)
  9. Sylvain Leduc & Keith Sill, 2001. "A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns," Working Papers 01-9, Federal Reserve Bank of Philadelphia. [Downloadable!]
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  10. Bernanke, Ben S & Gertler, Mark & Watson, Mark W, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 287-91, April.
  11. Bernanke, Ben S. & Gertler, Mark & Waston, Mark, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Working Papers 97-25, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  12. Finn, Mary G, 2000. "Perfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 400-416, August.
  13. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270. [Downloadable!] (restricted)
    Other versions:
  14. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
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  15. John B. Taylor, 2001. "The Role of the Exchange Rate in Monetary-Policy Rules," American Economic Review, American Economic Association, vol. 91(2), pages 263-267, May. [Downloadable!] (restricted)
  16. Stefan F. Schubert & Stephen J. Turnovsky, 2006. "Anticipated Fiscal Policy Changes and Goods Market Adjustments," German Economic Review, Blackwell Publishing, vol. 7, pages 135-161, 05. [Downloadable!] (restricted)
  17. Bennett T. McCallum & Edward Nelson, 2000. "Nominal Income Targeting in an Open-Economy Optimizing Model," NBER Working Papers 6675, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Backus, David K. & Crucini, Mario J., 2000. "Oil prices and the terms of trade," Journal of International Economics, Elsevier, vol. 50(1), pages 185-213, February. [Downloadable!] (restricted)
    Other versions:
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