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Monetary effects on nominal oil prices

  • Max Gillman

    ()

    (Cardiff University Business School)

  • Anton Nakov

    ()

    (Banco de España)

The paper presents a theory of nominal asset prices for competitively owned oil. Focusing on monetary effects, with flexible oil prices the US dollar oil price should follow the aggregate US price level. But with rigid nominal oil prices, the nominal oil price jumps proportionally to nominal interest rate increases. We find evidence for structural breaks in the nominal oil price that are used to illustrate the theory of oil price jumps. The evidence also indicates strong Granger causality of the oil price by US inflation as is consistent with the theory.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/09/Fic/dt0928e.pdf
File Function: First version, December 2009
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0928.

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Length: 37 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:bde:wpaper:0928
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