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Oil prices and global factor macroeconomic variables

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This paper investigates the relationship between oil prices, and global output, prices, central bank policy interest rate and monetary aggregates with a global factor-augmented error correction model. We confirm the following stylized relationships: i) in line with the quantitative theory of money, at global level, money, output and prices are cointegrated; ii) positive innovation in global oil price is connected with global interest rate tightening; iii) positive innovation in global money, price level and output is connected with an increase in oil prices; iv) positive innovations in global interest rate are associated with a decline in oil prices; v) positive shocks to the trade weighted U.S. dollar are linked with reductions in oil price; vi) the U.S., Euro area and China are the main drivers of global macroeconomic factors.

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File URL: http://eprints.utas.edu.au/22665/1/2015-08_Ratti.pdf
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Paper provided by University of Tasmania, Tasmanian School of Business and Economics in its series Working Papers with number 2015-08.

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Length: 39 pages
Date of creation: 2015
Publication status: Published by the University of Tasmania. Discussion paper 2015-08
Handle: RePEc:tas:wpaper:22665
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