Publication
Jul 2010
We estimate a seven-variable-VAR for the US economy on postwar data using long-run restrictions, taking changes in long-run interest rates and inflation expectations into account. We find a strong connection between oil prices and long-run nominal interest rates which has lasted throughout the entire postwar period. We find that a simple off-the-shelf theoretical model of oil prices and monetary policy, where oil prices are flexible and other prices are sticky, in fact predicts a strong relationship if inflation and oil prices were driven by monetary policy. The observed magnitude of this relationship is still a bit of a puzzle, but this finding does call into question the identification techniques commonly used to identify oil shocks.
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English (PDF, 32 pages, 1.0 MB) |
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Author | Christopher P Reicher, Johannes Utlaut |
Series | Kiel Institute Working Papers |
Issue | 1637 |
Publisher | Kiel Institute for the World Economy |
Copyright | © 2010 Kiel Institute for the World Economy |