Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/37094 
Year of Publication: 
2010
Series/Report no.: 
Kiel Working Paper No. 1637
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
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

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