Monetary policy and crude oil: a theoretical analysis

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Chapter 2 in Monetary Policy and Crude Oil, 2017, pp 26-106 from Edward Elgar Publishing

Abstract: The first section of this chapter is dedicated to theories of money and financial markets in general. By confronting them we argue that the economy can be best understood by perceiving money as endogenous. Moreover, financial markets are not a mere reflection of the real economy determined by general equilibrium as claimed by neoclassical economics but may themselves well impact on economic fundamentals. These general features then are applied to the crude oil market. The central characteristic of crude oil is its dual nature: it is a physical good but serves as well as a financial asset in the form of futures contracts. Monetary policy effects through transmission channels are analyzed. It is found that monetary policy influences the oil price mainly through the futures market by means of speculation. The oil price itself affects investment behaviour in the spot market. We suggest that expansive monetary policy finally gives rise to a higher oil intensity of the economy.

Keywords: Economics and Finance; Environment (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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