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Title:The relationship between oil prices and long-term interest rates PDF Logo
Authors:Reicher, Christopher Phillip
Utlaut, Johannes Friederich
Issue Date:2010
Series/Report no.:Kiel working paper 1637
Abstract:We estimate a seven-variable-VAR for the U.S. economy on postwar data using long-run restrictions, taking changes in long-run interest rates and inflation expectations into account. We find a strong connection between oil prices and long-run nominal interest rates which has lasted throughout the entire postwar period. We find that a simple off-the-shelf theoretical model of oil prices and monetary policy, where oil prices are flexible and other prices are sticky, in fact predicts a strong relationship if inflation and oil prices were driven by monetary policy. The observed magnitude of this relationship is still a bit of a puzzle, but this finding does call into question the identification techniques commonly used to identify oil shocks.
Subjects:Oil shocks
interest rates
inflation
JEL:E31
E58
N50
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
Kieler Arbeitspapiere, IfW

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