Oil shocks and the zero bound on nominal interest rates

Martin Bodenstein, Luca Guerrieri and Christopher J. Gust

Journal of International Money and Finance, 2013, vol. 32, issue C, 941-967

Abstract: Beginning in 2008, in many advanced economies, policy rates reached their zero lower bound (ZLB) and 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. We show that the mitigation of the output decline from the zero lower bound depends on the source of the shock and on the persistence that alternative shocks induce in the price of oil.

Keywords: Oil shocks; Zero lower bound; DSGE models (search for similar items in EconPapers)
JEL-codes: F32 F41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560612001544
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Oil shocks and the zero bound on nominal interest rates (2010)
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:eee:jimfin:v:32:y:2013:i:c:p:941-967

DOI: 10.1016/j.jimonfin.2012.08.002

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().