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Did Easy Money in the Dollar Bloc Fuel the Oil Price Run-Up?


  • Christopher Erceg

    (Federal Reserve Board)

  • Luca Guerrieri

    (Federal Reserve Board)

  • Steven B. Kamin

    (Federal Reserve Board)


Among the various explanations for the run-up in oil prices that occurred through mid-2008, one story focuses on the role of monetary policy in the United States and in developing economies. In this view, developing countries that peg their currencies to the dollar were forced to ease their monetary policies in response to reductions in U.S. interest rates, leading to economic overheating and higher oil prices. We assess that hypothesis using simulations of SIGMA, a multi-country DSGE model. Even when the currencies of many developing countries are pegged to the dollar rigidly, an easing of U.S. monetary policy leads to only a transitory run-up in oil prices. Instead, strong economic growth in many developing economies, as well as shortfalls in oil production, better explain the sustained run-up in oil prices observed between 2004 and 2008.

Suggested Citation

  • Christopher Erceg & Luca Guerrieri & Steven B. Kamin, 2011. "Did Easy Money in the Dollar Bloc Fuel the Oil Price Run-Up?," International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 131-160, March.
  • Handle: RePEc:ijc:ijcjou:y:2011:q:1:a:6

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    References listed on IDEAS

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    Cited by:

    1. Kallis, Giorgos & Sager, Jalel, 2017. "Oil and the economy: A systematic review of the literature for ecological economists," Ecological Economics, Elsevier, vol. 131(C), pages 561-571.
    2. Breitenfellner, Andreas & Crespo Cuaresma, Jesús & Mayer, Philipp, 2015. "Energy inflation and house price corrections," Energy Economics, Elsevier, vol. 48(C), pages 109-116.
    3. John C. Williams, 2011. "Maintaining price stability in a global economy," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may9.
    4. Morana, Claudio, 2013. "Oil price dynamics, macro-finance interactions and the role of financial speculation," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 206-226.
    5. Reicher Christopher Phillip & Utlaut Johannes Friederich, 2013. "Monetary policy shocks and real commodity prices," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-35, October.
    6. Martin Bodenstein & Luca Guerrieri & Lutz Kilian, 2012. "Monetary Policy Responses to Oil Price Fluctuations," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(4), pages 470-504, December.
    7. John C. Williams, 2012. "Bank regulation in the post-crisis world," Speech 104, Federal Reserve Bank of San Francisco.
    8. Kuhanathan Ano Sujithan & Sanvi Avouyi-Dovi & Lyes Koliai, 2013. "Does Monetary Policy Respond to Commodity Price Shocks?," Post-Print hal-01511915, HAL.
    9. repec:dau:papers:123456789/11718 is not listed on IDEAS

    More about this item

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission


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