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Information effects of monetary policy announcements on oil price

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  • Yang, Yang
  • Zhang, Jiqiang
  • Chen, Sanpan

Abstract

If the information held by the central bank is different from that of market participants, then the central bank’s announcement not only affects the view of monetary policy but also the view of economic fundamentals. This study investigates the information effects of monetary policy announcements on oil prices using a structural vector autoregression (VAR) model identified by sign restrictions. The sign restrictions rely on the high-frequency linkage between stock prices and interest rates surrounding the policy announcements. We find that a positive central bank information shock, which raises the interest rate by six basis points, leads to a 1.7% increase in oil prices within two months. We also find that central bank information shocks affect oil prices through the finance and expectation channels.

Suggested Citation

  • Yang, Yang & Zhang, Jiqiang & Chen, Sanpan, 2023. "Information effects of monetary policy announcements on oil price," Journal of Commodity Markets, Elsevier, vol. 30(C).
    • Handle: RePEc:eee:jocoma:v:30:y:2023:i:c:s2405851322000265
    DOI: 10.1016/j.jcomm.2022.100268
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    More about this item

    Keywords

    Information effect; Monetary policy announcement; Oil price; Sign restriction;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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