Monetary effects on nominal oil prices

Max Gillman and Anton Nakov

No 928, Working Papers from Banco de España

Abstract: The paper presents a theory of nominal asset prices for competitively owned oil. Focusing on monetary effects, with flexible oil prices the US dollar oil price should follow the aggregate US price level. But with rigid nominal oil prices, the nominal oil price jumps proportionally to nominal interest rate increases. We find evidence for structural breaks in the nominal oil price that are used to illustrate the theory of oil price jumps. The evidence also indicates strong Granger causality of the oil price by US inflation as is consistent with the theory.

Keywords: oil prices; inflation; cash-in-advance; multiple structural breaks; Granger causality (search for similar items in EconPapers)
JEL-codes: E31 E4 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2009-12
New Economics Papers: this item is included in nep-cba, nep-ene, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Monetary effects on nominal oil prices (2009)
Working Paper: Monetary Effects on Nominal Oil Prices (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0928

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