Oil prices, inflation and interest rates in a structural cointegrated VAR model for the G-7 countries

Abstract

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 Oil Prices, Inflation and Interest Rates in a Structural Cointegrated VAR Model for the G-7 Countries SummarySharp increases in the price of oil are generally seen as a major contributor to business cycle asymmetries. Moreover, the very recent highs registered in the world oil market are causing concern about possible slowdowns in the economic performance of the most developed countries. While several authors have considered the direct channels of transmission of energy price increases, other authors have argued that the economic downturns arose from the monetary policy response to the inflation presumably caused by oil price increases. In this paper a structural cointegrated VAR model has been considered for the G-7 countries in order to study the direct effects of oil price shocks on output and prices and the reaction of monetary variables to external shocks. Empirical analysis shows that, for most of the countries considered, there seems to be an impact of unexpected oil price shocks on interest rates, suggesting a contractionary monetary policy response directed to fight inflation. In turn, increases in interest rates are transmitted to real economy by reducing output growth and the inflation rate.

Dynamic spillovers of oil price shocks and economic policy uncertainty

“…More specifically, past evidence suggest that there are significant effects of oil prices on industrial production and inflation (see, inter alia, Filis and Chatziantoniou, 2013;Balke et al, 2010;Tang et al, 2010;Du et al, 2010;Filis, 2010;Peter Ferderer, 1997). Furthermore, authors such as, Rahman and Serletis (2011), Elder and Serletis (2010), Cologni and Manera (2008), Cunado and Pérez de Gracia (2005), Lee et al (1995) and Hamilton (1983) confirm that the US economic activity has been significantly affected by rises in oil prices, as well as, by the uncertainty about future oil price changes. Along a similar vein, Montoro (2012) and Natal (2012) also establish the link between increased inflation and low production output given an oil price increase.…”

“…On one hand, higher oil prices exert negative impacts on the economy, such as lower productivity and/or higher inflation (see, inter alia, Filis and Chatziantoniou, 2013;Montoro, 2012;Natal, 2012;Rahman and Serletis, 2011;Balke et al, 2010;Elder and Serletis, 2010;Tang et al, 2010;Du et al, 2010;Filis, 2010;Cologni and Manera, 2008;Cunado and Pérez de Gracia, 2005;Peter Ferderer, 1997;Hamilton, 1983). Such economic conditions put pressure on policy makers to mitigate the negative effects of increased oil prices, which in turn, raises concerns regarding the success of these policies.…”

Reverse globalization: Does high oil price volatility discourage international trade?

“…Moreover, a number of recent studies show that oil price shocks have significant effects on a variety of domestic economic activities. An increase in oil prices has a significant negative impact on GDP growth and contributes to a higher inflation rate for most countries (see Hamilton (2009a), Cologni and Manera (2008), and Lardic and Mignon (2008)). Finally, Ordonez et al (2011) show that the oil price shock is an important driving force of the cyclical labor adjustments in the US labor market, and the job-finding probability is the main transmission mechanism of such a shock.…”

The asymmetric effects of oil shocks on output growth: A Markov–Switching analysis for the G-7 countries

“…Cunado and Perez de Gracia (2003) concentrate on the effects of oil price shocks on the industrial production and consumer price indices for 14 European countries. Jimenez-Rodriguez and Sanchez (2005) and Cologni and Manera (2006) carry out multivariate regressions for the most developed countries in order to account, respectively, for the inverse relationship between GDP and oil prices and the reaction of monetary variables to external shocks. Kilian (2006) estimates the effects of exogenous shocks to global oil production on the most industrialized countries.…”