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Monetary effects on nominal oil prices

Max Gillman () and Anton Nakov ()

No 928, Working Papers from Banco de España, Working Papers Homepage

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)
New Economics Papers: this item is included in nep-cba, nep-ene, nep-mac and nep-mon
Date: 2009-12
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Citations: View citations in EconPapers (13) Track citations by RSS feed

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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/09/Fic/dt0928e.pdf First version, December 2009 (application/pdf)

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Journal Article: Monetary effects on nominal oil prices (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0928

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