Monetary Policy Rules and Oil Price Shocks

Christian Pierdzioch and Christophe Kamps ()

No 1090, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper studies the relative performance of alternative monetary policy rules in the presence of oil price shocks in a small open economy optimizing model. Our analysis shows that it is important to distinguish between alternative price indices (CPI, core CPI, and GDP deflator) when modeling the effects of oil price increases. This distinction has important implications for monetary policy as the central bank has to decide which inflation rate to target. Our results demonstrate that targeting the change in the GDP deflator is an inferior monetary policy strategy in the presence of oil price shocks.

Keywords: Monetary policy rules; Open economy; Oil price shocks; Price indices (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 E58 F41 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1090

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