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Oil price shocks and monetary policy in a data-rich environment

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  • Knut Are Aastveit

    () (Norges Bank (Central Bank of Norway) and the University of Oslo)

Abstract

This paper examines the impact of different types of oil price shocks on the U.S. economy, using a factor-augmented VAR (FAVAR) approach. The results indicate that when examining the effects of oil price shocks, it is important to account for the interaction between the oil market and the macroeconomy. I find that oil demand shocks are more important than oil supply shocks in driving several macroeconomic variables, and that the origin of demand shocks matter. Specifically, the U.S. economy and monetary policy respond differently to global demand shocks that have the effect of raising the price of oil and to oil-specific demand shocks.

Suggested Citation

  • Knut Are Aastveit, 2013. "Oil price shocks and monetary policy in a data-rich environment," Working Paper 2013/10, Norges Bank.
  • Handle: RePEc:bno:worpap:2013_10
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    File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2013/WP-201310/
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Knut Are Aastveit & Hilde C. Bjørnland & Leif Anders Thorsrud, 2015. "What Drives Oil Prices? Emerging Versus Developed Economies," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(7), pages 1013-1028, November.
    2. Knut Are Aastveit & Hilde C. Bjørnland & Leif Anders Thorsrud, 2016. "The World Is Not Enough! Small Open Economies and Regional Dependence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(1), pages 168-195, January.
    3. Liu, Jing-Yu & Lin, Shih-Mo & Xia, Yan & Fan, Ying & Wu, Jie, 2015. "A financial CGE model analysis: Oil price shocks and monetary policy responses in China," Economic Modelling, Elsevier, vol. 51(C), pages 534-543.
    4. Melolinna, Marko, 2012. "Macroeconomic shocks in an oil market var," Working Paper Series 1432, European Central Bank.
    5. Luis N. Lanteri, 2013. "Comportamiento de los precios reales de la tierra agrícola en la Argentina y en los Estados Unidos, 1960-2012," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 2, pages 1-1, December.
    6. Lamazoshvili Beka, 2014. "Effects of Oil Shocks on Oil-Importing Developing Economies: The Case of Georgia and Armenia," EERC Working Paper Series 14/06e, EERC Research Network, Russia and CIS.

    More about this item

    Keywords

    Oil demand shocks; Oil supply shocks; Business cycle; Monetary policy; Factor model; FAVAR;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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