Oil shocks and the zero bound on nominal interest rates

Martin Bodenstein, Luca Guerrieri and Christopher Gust

No 1009, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Beginning in 2009, in many advanced economies, policy rates reached their zero lower bound (ZLB). Almost at the same time, oil prices started rising again. We analyze how the ZLB affects the propagation of oil shocks. As these shocks move inflation and output in opposite directions, their effects on economic activity are cushioned when monetary policy is constrained. The burst of inflation from an oil price increase lowers real interest rates at the ZLB and stimulates the interest-sensitive component of GDP, offsetting the usual contractionary effects. In fact, if the increase in oil prices is gradual, the persistent rise in inflation can cause a GDP expansion.

Keywords: Petroleum products - Prices; Petroleum industry and trade (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-ene, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/2010/1009/default.htm (text/html)
http://www.federalreserve.gov/pubs/ifdp/2010/1009/ifdp1009.pdf (application/pdf)

Related works:
Journal Article: Oil shocks and the zero bound on nominal interest rates (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1009

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().