Modeling the Asymmetric Effects of an Oil Price Shock

Lance J Bachmeier and Benjamin Keen
Additional contact information
Lance J Bachmeier: Kansas State University

International Journal of Central Banking, 2023, vol. 19, issue 3, 1-47

Abstract: This paper documents that an oil price increase generates a larger decline in output when the oil price hits a near-term high. We develop a New Keynesian model with energy and a downward nominal wage rigidity that generates asymmetric responses of the macroeconomy to energy price shocks. Specifically, a large energy price increase pushes down the real wage enough that the downward nominal wage constraint binds for several periods, which causes firms to reduce their output further. Since that mechanism is unimportant when energy prices fall, the downward nominal wage constraint causes output to react asymmetrically to oil price shocks.

JEL-codes: E32 Q43 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.ijcb.org/journal/ijcb23q3a1.pdf (application/pdf)

Related works:
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:ijc:ijcjou:y:2023:q:3:a:1

Access Statistics for this article

International Journal of Central Banking is currently edited by Loretta J. Mester

More articles in International Journal of Central Banking from International Journal of Central Banking
Bibliographic data for series maintained by Bank for International Settlements ().