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Monetary policy and overshooting of oil prices in an open economy

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  • Baek, Jungho
  • Miljkovic, Dragan

Abstract

U.S. monetary conditions are occasionally considered a driver of commodity prices. Using a cointegrated vector autoregression and quarterly data for over the last three decades, this article examines the effect of U.S. money supply on oil prices, controlling for industrial prices and echange rates. We find that monetary shocks cause adjustments of oil prices and industrial prices to be vastly different in the long-run, thereby indicting non-neutrality of money in the long-run. It is also found that oil prices tend to adjust more quickly than industrial (sticky) prices to monetary shocks to achieve the long-run equilibrium, thereby affecting relative prices in the short run.

Suggested Citation

  • Baek, Jungho & Miljkovic, Dragan, 2018. "Monetary policy and overshooting of oil prices in an open economy," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 1-5.
    • Handle: RePEc:eee:quaeco:v:70:y:2018:i:c:p:1-5
    DOI: 10.1016/j.qref.2018.04.015
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    References listed on IDEAS

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    8. Muhammad Ali Rizwan & Muhammad Zeeshan Younas & Hafiza Sadaf Zahra & Zartaj Jamil, 2020. "External Monetary Constraints Imposed by Developed Economies on Developing Economies: Empirical Evidence from Pakistan," Asian Development Policy Review, Asian Economic and Social Society, vol. 8(1), pages 7-29, March.
    9. Nonejad, Nima, 2021. "Predicting the return on the spot price of crude oil out-of-sample by conditioning on news-based uncertainty measures: Some new empirical results," Energy Economics, Elsevier, vol. 104(C).
    10. Baek, Jungho & Caton, James Lee & Miljkovic, Dragan, 2025. "Testing monetary neutrality with respect to relative price of oil using divisia M4," The Quarterly Review of Economics and Finance, Elsevier, vol. 101(C).
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    13. Miljkovic, Dragan & Goetz, Cole, 2020. "The effects of futures markets on oil spot price volatility in regional US markets," Applied Energy, Elsevier, vol. 273(C).

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