Oil Price Shocks, Systematic Monetary Policy, and the “Great Moderation”

Herrera, Ana María; Pesavento, Elena

doi:10.1017/s1365100508070454

Cited by 225 publications

(141 citation statements)

References 45 publications

Supporting

Mentioning

134

Contrasting

Unclassified

Order By: Relevance

“…This choice is consistent with previous studies considering oil prices as determined before domestic variables (for instance, Hamilton, 1983 and1996;Bernanke, Gertler and Watson, 1997;Blanchard and Gali, 2007). However, there is also a large literature suggesting that oil prices might have been a¤ected by world demand, and thus US domestic output, especially in the last two/three decades (among the others, Rotemberg and Woodford, 1996;Baumeister and Peersman, 2008;Kilian, 2008;Lippi and Nobili, 2008;Herrera and Pesavento, 2009). …”

Section: The Process For the Real Price Of Oilsupporting

confidence: 89%

The role of model uncertainty and learning in the US postwar policy response to oil prices

Rondina

2012

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

This paper studies optimal monetary policy in a framework that explicitly accounts for policymakers' uncertainty about the channels of transmission of oil prices into the economy. More speci…cally, I examine the robust response to the real price of oil that US monetary authorities would have been recommended to implement in the period 1970 2009; had they used the approach proposed by Cogley and Sargent (2005b) to incorporate model uncertainty and learning into policy decisions. In this context, I investigate the extent to which regulators'changing beliefs over di¤erent models of the economy play a role in the policy selection process. The main conclusion of this work is that, in the speci…c environment under analysis, one of the underlying models dominates the optimal interest rate response to oil prices. This result persists even when alternative assumptions on the models'priors change the pattern of the relative posterior probabilities, and can thus be attributed to the presence of model uncertainty itself.

show abstract

Section: The Process For the Real Price Of Oilsupporting

confidence: 89%

The role of model uncertainty and learning in the US postwar policy response to oil prices

Rondina

2012

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

show abstract

“…Meanwhile, the heightened uncertainty associated with positive oil price shocks that leads to precautionary savings Kilian, 2007, 2009) or amplication of financial channels (Baskaya et al, 2013;Plante and Traum, 2014) may be lessened (or its costs downplayed) in periods of high economic growth. Finally, to the extent that inflation increases more rapidly when resources are fully utilized, monetary authorities that respond more strongly to deviations of inflation above long-run inflation targets (Herrera and Pesavento, 2009;Kilian and Vigfusson, 2011a;Yellen, 2012) could attenuate the negative effects of higher oil prices in periods of high economic growth.…”

Section: Discussion Of Resultsmentioning

confidence: 99%

“…This evidence suggests that the fall in inflation due to a negative oil price shock is larger in magnitude than the increase in inflation due to a positive oil price shock, and this difference is exacerbated in the low-growth regime. Intuitively, a potential bias in the response of monetary authorities to inflation above or below the long-run target may explain these differences (Herrera and Pesavento, 2009;Kilian and Vigfusson, 2011a;Yellen, 2012). Inflation is more likely to be below its long-run target during recessionary times.…”

Section: Discussion Of Resultsmentioning

confidence: 99%

The Asymmetric Effects of Oil Price Shocks on the Canadian Economy

Donayre

Wilmot

2015

SSRN Journal

View full text Add to dashboard Cite

A threshold vector autoregression (TVAR) is estimated to study the effects of oil price shocks on Canadian output and price level. While much of the literature has investigated potential asymmetric effects of positive and negative oil price shocks within a linear vector autoregression (VAR), we do so within a nonlinear VAR. Further, we extend the analysis to consider the correlation between asymmetries associated with the business cycle phase and size/sign asymmetries. Positive oil price shocks are found to have a stronger effect on output than negative oil price shocks. This asymmetry is significant in recessions, but lessened during expansions. The results also suggest that the reduction in inflation due to a negative oil price shock is larger than the increase in inflation following a positive oil price shock, especially during periods of low output growth. Yet, neither inflation nor output growth seems to vary disproportionately with the size of the oil price shock. In general, the results are robust to the ordering of the variables in the VAR process and to the time window over which the net oil price change is computed.

show abstract

“…15 Table 2 shows that the 14 As already mentioned, since we only compare the relative cross-country differences over time, it does not matter whether we normalize on oil prices or oil production. 15 Note that if we would consider the change in the long-run impact on economic activity instead of the difference in the maximum effect, we would not take into account that in several countries also the shape of the response has changed considerably. This is clearly the case for Japan and Switzerland after an oil supply shock for example.…”

Section: Structural Changes and Cross-country Differences Over Timementioning

confidence: 99%

Cross-country differences in the effects of oil shocks

2012

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Cross-Country Differences in the Effects of Oil Shocks AbstractWe compare the economic consequences of several types of oil shocks across a set of industrialized countries that are structurally very diverse with respect to the role of oil and other forms of energy in their economy. We find considerably different effects across countries, which crucially depend on the underlying source of the oil price shift. For oil demand shocks driven by global economic activity and oil-specific demand shocks, all countries experience respectively a temporary increase and transitory decline of real GDP following the oil price increase. The role of oil and other forms of energy seems not to matter to explain cross-country differences for the consequences of both shocks. This role, however, is very important to explain asymmetries in the effects of exogenous oil supply shocks. Whereas net oil and energy-importing countries all face a permanent fall in economic activity, the impact is insignificant or even positive in net energy-exporting countries. In addition, countries that improved their net energy-position the most over time, became less vulnerable to oil supply and oil-specific demand shocks, relative to other countries.JEL-Code: E31, E32, Q43.

show abstract

Oil Price Shocks, Systematic Monetary Policy, and the “Great Moderation”

Cited by 225 publications

References 45 publications

The role of model uncertainty and learning in the US postwar policy response to oil prices

The role of model uncertainty and learning in the US postwar policy response to oil prices

The Asymmetric Effects of Oil Price Shocks on the Canadian Economy

Cross-country differences in the effects of oil shocks

Contact Info

Product

Resources

About