“…Much of the existing analysis on the conduct of monetary policy in the face of oil price fluctuations relies on the counterfactual premise that the real price of crude oil is exogenous with respect to the U.S. economy (see, for example, Leduc and Sill, 2004;Carlstrom and Fuerst, 2006;Dhawan and Jeske, 2007;Plante, 2009a, b;Winkler, 2009;Montoro, 2010;Kormilitsina, 2011;Natal, 2012). Even those DSGE studies that have endogenized the real price of oil have made strong and unrealistic simplifying assumptions about the determination of the price of oil in global markets (see, for example, Backus and Crucini, 1998), have ignored monetary policy (see, for example, Backus and Crucini, 1998;Balke, Brown, and Yu¨cel, 2010;Bodenstein, Erceg, and Guerrieri, 2011;Nakov and Nun˜o, 2011), or have ignored the open economy aspect of the transmission of oil price shocks (see, for example, Bodenstein, Erceg, and Guerrieri, 2008;Nakov and Pescatori, 2010a, b).…”