Monetary policy and overshooting of oil prices in an open economy
Jungho Baek and
Dragan Miljkovic ()
The Quarterly Review of Economics and Finance, 2018, vol. 70, issue C, 1-5
U.S. monetary conditions are occasionally considered a driver of commodity prices. Using a cointegrated vector autoregression and quarterly data for over the last three decades, this article examines the effect of U.S. money supply on oil prices, controlling for industrial prices and echange rates. We find that monetary shocks cause adjustments of oil prices and industrial prices to be vastly different in the long-run, thereby indicting non-neutrality of money in the long-run. It is also found that oil prices tend to adjust more quickly than industrial (sticky) prices to monetary shocks to achieve the long-run equilibrium, thereby affecting relative prices in the short run.
Keywords: Cointegrated vector autoregression; Monetary policy; Open economy; Overshooting of oil prices (search for similar items in EconPapers)
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