IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Monetary policy responses to oil price fluctuations

  • Bodenstein, Martin
  • Guerrieri, Luca
  • Kilian, Lutz

The recent volatility in global commodity prices and in the price of oil, in particular, has created renewed interest in the question of how monetary policy makers should respond to oil price fluctuations. In this paper, we discuss why this question is ill-posed and has no general answer. The central message of our analysis is that the best central bank policy response to oil price fluctuations depends on why the price of crude oil has changed. For example, an unexpected oil supply disruption in the Middle East calls for a different policy response than an unexpected increase in Chinese productivity or oil intensity. This means that policy makers need to disentangle the structural shocks that are jointly driving the price of oil and the macroeconomy and tailor their response to the observed mix of shocks. We use a multi-country DSGE model to quantify the appropriate policy responses and to analyze the optimal responses from a welfare point of view. We also reexamine the welfare gains from global monetary policy coordination in a world with trade in oil.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8928
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8928.

as
in new window

Length:
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:cpr:ceprdp:8928
Contact details of provider: Postal:
Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.

Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Rotemberg, Julio J & Woodford, Michael, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 550-77, November.
  2. Maurice Obstfeld & Kenneth Rogoff, 2003. "Global Implications of Self-Oriented National Monetary Rules," Macroeconomics 0303018, EconWPA.
  3. Lutz Kilian & Logan T. Lewis, 2011. "Does the Fed Respond to Oil Price Shocks?," Economic Journal, Royal Economic Society, vol. 121(555), pages 1047-1072, 09.
  4. Kilian, Lutz, 2009. "Oil Price Shocks, Monetary Policy and Stagflation," CEPR Discussion Papers 7324, C.E.P.R. Discussion Papers.
  5. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
  6. Coenen, Günter & Lombardo, Giovanni & Smets, Frank & Straub, Roland, 2008. "International transmission and monetary policy cooperation," Working Paper Series 0858, European Central Bank.
  7. Anna Kormilitsina, 2009. "Oil Price Shocks and the Optimality of Monetary Policy," Departmental Working Papers 0901, Southern Methodist University, Department of Economics.
  8. Montoro, Carlos, 2012. "Oil Shocks And Optimal Monetary Policy," Macroeconomic Dynamics, Cambridge University Press, vol. 16(02), pages 240-277, April.
  9. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, 04.
  10. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
  11. Alquist, Ron & Kilian, Lutz, 2007. "What Do We Learn from the Price of Crude Oil Futures?," CEPR Discussion Papers 6548, C.E.P.R. Discussion Papers.
  12. Luca Guerrieri & Christopher Erceg & Martin Bodenstein, 2008. "Oil Shocks and External Adjustment," 2008 Meeting Papers 945, Society for Economic Dynamics.
  13. James L. Smith, 2005. "Inscrutable OPEC? Behavioral Tests of the Cartel Hypothesis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 51-82.
  14. Jean-Marc Natal, 2010. "Monerary Policy Response to Oil Price Shocks," Working Papers 2010-15, Swiss National Bank.
  15. Pedro A. Almoguera & Christopher C. Douglas & Ana María Herrera, 2011. "Testing for the cartel in OPEC: non-cooperative collusion or just non-cooperative?," Oxford Review of Economic Policy, Oxford University Press, vol. 27(1), pages 144-168, Spring.
  16. Leduc, Sylvain & Sill, Keith, 2004. "A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 781-808, May.
  17. Charles T. Carlstrom & Timothy S. Fuerst, 2005. "Oil prices, monetary policy, and counterfactual experiments," Working Paper 0510, Federal Reserve Bank of Cleveland.
  18. Renee Fry & Callum Jones & Christopher Kent, 2010. "Inflation in an Era of Relative Pirce Shocks," CAMA Working Papers 2010-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  19. David K. Backus & Mario J. Crucini, 1998. "Oil Prices and the Terms of Trade," NBER Working Papers 6697, National Bureau of Economic Research, Inc.
  20. Bassam Fattouh, Lutz Kilian, and Lavan Mahadeva, 2013. "The Role of Speculation in Oil Markets: What Have We Learned So Far?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
  21. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, May.
  22. Galí, Jordi & Gertler, Mark, 1999. "Inflation Dynamics: A Structural Economic Analysis," CEPR Discussion Papers 2246, C.E.P.R. Discussion Papers.
  23. 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.
  24. Rajeev Dhawan & Karsten Jeske, 2007. "Taylor rules with headline inflation: a bad idea," FRB Atlanta Working Paper 2007-14, Federal Reserve Bank of Atlanta.
  25. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-69, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:8928. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.