Re-visiting the Relationship Between Oil Prices and Monetary Policy

Hilde C. Bjørnland (), Jamie L. Cross () and Jonas Hölz ()
Authors registered in the RePEc Author Service: Hilde Christiane Bjørnland ()

No No 04/2025, Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School

Abstract: This paper examines how central banks respond to supply-side shocks and investigates the trade-offs they face in stabilizing inflation and output. To do so we develop a dual external instrument proxy structural vector autoregressive (SVAR) model to disentangle the macroeconomic effects of oil supply news and monetary policy shocks. Our identification strategy, which combines multiple external instruments with sign restrictions, enables a sharp distinction between structural shocks, allowing us to analyze their dynamic effects and construct policy counterfactuals for different central bank objectives. We find that both oil supply and monetary policy shocks significantly influence U.S. output and inflation. Moreover, while monetary policy can mitigate some of the output losses caused by oil price shocks, it cannot fully offset their inflationary effects. Finally, we estimate that the Federal Reserve’s historical response aligns.

Pages: 43 pages
Date: 2025-03
New Economics Papers: this item is included in nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hdl.handle.net/11250/3188513

Related works:
Working Paper: Re-visiting the Relationship Between Oil Prices and Monetary Policy (2025)
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:bny:wpaper:0139

Access Statistics for this paper

More papers in Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School Contact information at EDIRC.
Bibliographic data for series maintained by Helene Olsen ().