Amstad, Marlene and Hildebrand, Philipp (2005): The oil price and monetary policy – a new paradigm. Published in: Swiss National Bank, Quarterly Bulletin No. 3 (October 2005): pp. 62-80.
Download (464kB) | Preview
The oil price hit a low of around USD 10 at the end of 1999. Since then it has moved upwards in a series of steps. In recent years it has been one of the most closely monitored components of the Consumer Price Index (CPI), which is a leading inflation indicator. When it topped the USD 50 mark in October 2004 and in March 2005 and, even more clearly, when it passed USD 60 in mid-2005, it brought back painful memories of the severe economic consequences of the 1970s oil crisis. However, in real terms – after adjusting for inflation – the oil price is still lower now than it was then. Another striking factor is that between the mid 1980s and the turn of the millennium the oil price fluctuated around an average of about USD 20. Since then, the average price level and volatility have greatly increased. Although a few years do not provide sufficient evidence to validate a trend, they do raise questions about the background to the oil price hike and its implications for monetary policy. This paper looks at the fundamental factors which suggest that oil prices are likely to remain both high and volatile. It also discusses the implications for monetary policy. Since maintaining price stability is the principal objective of monetary policy, this paper focuses primarily on the impact of oil prices on inflation; the effects on growth are considered insofar as they affect inflation. Section 2 outlines some of the reasons why oil prices are expected to remain high and volatile. Section 3 looks at forecasting oil prices while Section 4 outlines the possible implications of higher oil prices for economic growth and inflation. Finally, Section 5 examines the monetary policy implications of sustained high oil prices. The final section presents our conclusions.
|Item Type:||MPRA Paper|
|Original Title:||The oil price and monetary policy – a new paradigm|
|Keywords:||oil price; monetary policy|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy
|Depositing User:||Marlene Amstad|
|Date Deposited:||07. Jun 2009 03:19|
|Last Modified:||12. Feb 2013 15:15|
Adelman, M.A. 1995. The Genie out of the Bottle: World Oil since 1970. MIT Press. Cambridge. Bank for International Settlements (BIS). 2004. Quarterly Review, September.
Bank for International Settlements (BIS). 2005. 75th Annual Report: 1 April 2004–31 March 2005. Bank of England. 2000. Inflation Report, November.
Bernanke, Ben S., Mark Gertler, and Mark W. Watson. 1997. Systematic Monetary Policy and the Effects of Oil Price Shocks. Brookings Papers on Economic Activity 1: 91–142.
Bernanke, Ben S. 2004. Oil and the Economy. Distinguished Lecture Series, Darton College, Albany, Georgia October 21.
Brook, Anne-Marie, Robert Price, Douglas Sutherland, Niels Westerlund and Christophe Andre. 2004. Oil price developments: drivers, economic consequences and policy responses. OECD Economics Working Paper No. 412.
Chinn, Menzie, Michael LeBlanc, and Olivier Coibion. 2001. The Predictive Characteristics of Energy Futures: Recent Evidence for Crude Oil, Natural Gas, Gasoline, and Heating Oil. Unpublished paper, University of California, Santa Cruz.
Congressional Budget Office. 2005. The Budget and Economic Outlook: Fiscal Years 2006 to 2015, January 2005.
Davis, Steven J. and John Haltiwanger. 2001. Sectoral job creation and destruction responses to oil price changes. Journal of Monetary Economics 48(3), December: 465–512.
Fels, Joachim, 2004. High Prices, High Volatility – Oil Market Outlook. Morgan Stanley Presentation September 22.
Gerlach-Kristen, Petra. 2005. The impact of the new Swiss monetary policy framework on inflation expectations. Mimeo, Swiss National Bank.
Gramlich, Edward M. 2004. Oil Shocks and Monetary Policy. Speech delivered at the Annual Economic Luncheon, Federal Reserve Bank of Kansas City, September 16.
Halff Antoine. 2004. The Oil Market Today: the current price shock, the cause and the impact – How will demand from southeast Asia and the US be affected? Presentation at the Center for Global Energy Studies 25th Executive Retreat Meeting, 2 December.
Hamilton, James, D. 2003. What is an oil shock? Journal of Econometrics 113(2), April: 363–398. Hamilton, James D. and Ana Maria Herrera. 2000. Oil Shocks and Aggregate Macreconomic Behavior: The Role of Monetary Policy. Working Paper, University of California, San Diego. August.
Haubrich, Joseph G., Patrick Higgins and Janet Miller. 2004. Oil Prices: Backward to the Future? Federal Reserve Bank of Cleveland, December.
Hooker, Mark A. 1999. Are the Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime. Finance and Economics Discussion Paper No. 65, Board of Governors of the Federal Reserve System, November.
Hotelling, Harold. 1931. The economics of exhaustible resources. Journal of Political Economy 39(2): 137–175.
Hunt Benjamin, Peter Isard and Douglas Laxton. 2001. The Macreconomic Effects of Higher Oil Prices. International Monetary Fund Working Paper 01/14, January.
HWWA (Hamburg Institute of International Economics – Archive). Rohstoffberichte (Commodity Reports) 2004, 2005.
International Energy Agency. 2004. Analysis of the impact of higher oil prices on the global economy, March.
International Energy Agency. 2005. Oil Market Report, January.
International Monetary Fund. 2000. The Impact of Higher Oil Prices on the Global Economy.
Jimenez-Rodriguez Rebeca and Marcelo Sanchez. 2004. Oil price shocks and real GDP growth: empirical evidence for some OECD countries. European Central Bank Working Paper No. 362.
Norris, Floud. 2004. Lesson of Iraq: High Oil Prices May Not Be Temporary. New York Times 13, August.
OECD. 2004. Economic Outlook No. 76, Paris.
OECD. 2005. Economic Outlook No. 77, Paris.
Sims, Christopher A. 1997. Comments and Discussion. Brookings Papers on Economic Activity 1: 143–148.
Swiss Federal Statistical Office (BfS/SFSO). Landesindex der Konsumentenpreise, Warenkorb und Gewichtung (National consumer price index, basket of goods and weightings) 1966–2005.
Weiner, Robert J. 2002. Sheep in wolves’ clothing? Speculators and price volatility in petroleum futures. Quarterly Review of Economics and Finance 42(2): 391–400.
Woodford, Michael. 2003. Interest and Prices: Foundations of a Theory of Monetary Policy. Princeton: Princeton University Press.
World Bureau of Metal Statistics. World Metal Statistics. February 2004.