Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/21990 
Year of Publication: 
2005
Series/Report no.: 
Economics Working Paper No. 2005-01
Publisher: 
Kiel University, Department of Economics, Kiel
Abstract: 
The paper analyzes the dynamic effects of anticipated price increases of imported raw materials upon two large open economies. It is assumed that the economies have an asymmetric macroeconomic structure on the supply side and are dependent upon a small third country for oil or raw materials imports. The dynamic behavior of several macroeconomic variables is discussed under alternative scenarios. We first assume that oil is priced in dollars. Thereafter, we investigate the impacts of oil price shocks on the domestic and the foreign economy if oil imports are denominated in terms of domestic currency (Euro) rather than US dollars. It is shown that with domestic- currency denominated oil the stagflationary effects of oil price increases upon both the domestic and foreign economy are reduced. The paper also discusses several monetary policy responses to oil price shocks.
Subjects: 
oil price shocks
international policy coordination
time inconsistency
currency denomination
JEL: 
Q43
F41
E63
Document Type: 
Working Paper

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