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Have rising oil prices become a greater threat to price stability?

  • Martin Fukac

The effect of oil prices on inflation has varied greatly in the last 50 years. Rising oil prices in the 1970s and early 1980s were associated with high and rising inflation. In the late 1980s and 1990s, however, the inflationary effect moderated. Although the experience of the energy crisis in the 1970s and its excessive and persistent inflation is unlikely to be repeated, mainly because of a better functioning monetary policy framework, Fukac finds recent evidence suggesting that oil prices again are playing a more significant role in inflation. He argues that temporarily accommodative monetary policy and structural changes in the U.S. economy—such as increased consumer spending on petroleum—possibly doubled the effect of oil price changes on inflation relative to the early 2000s.

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Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

Volume (Year): (2011)
Issue (Month): Q IV ()
Pages: 27-53

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Handle: RePEc:fip:fedker:y:2011:i:qiv:p:27-53:n:v.96no.4
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  1. Chen, Shiu-Sheng, 2009. "Oil price pass-through into inflation," Energy Economics, Elsevier, vol. 31(1), pages 126-133, January.
  2. Olivier J. Blanchard & Marianna Riggi, 2013. "WHY ARE THE 2000s SO DIFFERENT FROM THE 1970s? A STRUCTURAL INTERPRETATION OF CHANGES IN THE MACROECONOMIC EFFECTS OF OIL PRICES," Journal of the European Economic Association, European Economic Association, vol. 11(5), pages 1032-1052, October.
  3. Goodfriend, Marvin, 2011. "Central banking in the credit turmoil: An assessment of Federal Reserve practice," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 1-12, January.
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  7. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
  8. Todd E. Clark & Stephen J. Terry, 2009. "Time variation in the inflation passthrough of energy prices," Research Working Paper RWP 09-06, Federal Reserve Bank of Kansas City.
  9. Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Publishing.
  10. Szilárd Benk & Max Gillman & Michal Kejak, 2005. "Credit Shocks in the Financial Deregulatory Era: Not the Usual Suspects," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 668-687, July.
  11. Taeyoung Doh, 2010. "The efficacy of large-scale asset purchases at the zero lower bound," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-34.
  12. Ke Tang & Wei Xiong, 2010. "Index Investment and Financialization of Commodities," NBER Working Papers 16385, National Bureau of Economic Research, Inc.
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  14. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," NBER Working Papers 17555, National Bureau of Economic Research, Inc.
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