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Oil Shocks And The Zero Bound On Nominal Interest Rates
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Book Synopsis Oil Shocks and the Zero Bound on Nominal Interest Rates by : Martin Bodenstein
Download or read book Oil Shocks and the Zero Bound on Nominal Interest Rates written by Martin Bodenstein and published by DIANE Publishing. This book was released on 2011-04 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: Beginning in 2009, in many advanced economies, policy rates reached their zero lower bound (ZLB). Almost at the same time, oil prices started rising again. The authors analyze how the ZLB affects the propagation of oil shocks. As these shocks move inflation and output in opposite directions, their effects on economic activity are cushioned when monetary policy is constrained. The burst of inflation from an oil price increase lowers real interest rates at the ZLB and stimulates theinterest-sensitive component of GDP, offsetting the usual contractionary effects. In fact, if the increase in oil prices is gradual, the persistent rise in inflation can cause a GDP expansion. Illus. This is a print on demand report.
Book Synopsis Oil Shocks and the Zero Bound on Nominal Interest Rates by : Martin Bodenstein
Download or read book Oil Shocks and the Zero Bound on Nominal Interest Rates written by Martin Bodenstein and published by . This book was released on 2010 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis International Dimensions of Monetary Policy by : Jordi Galí
Download or read book International Dimensions of Monetary Policy written by Jordi Galí and published by University of Chicago Press. This book was released on 2010-03-15 with total page 663 pages. Available in PDF, EPUB and Kindle. Book excerpt: United States monetary policy has traditionally been modeled under the assumption that the domestic economy is immune to international factors and exogenous shocks. Such an assumption is increasingly unrealistic in the age of integrated capital markets, tightened links between national economies, and reduced trading costs. International Dimensions of Monetary Policy brings together fresh research to address the repercussions of the continuing evolution toward globalization for the conduct of monetary policy. In this comprehensive book, the authors examine the real and potential effects of increased openness and exposure to international economic dynamics from a variety of perspectives. Their findings reveal that central banks continue to influence decisively domestic economic outcomes—even inflation—suggesting that international factors may have a limited role in national performance. International Dimensions of Monetary Policy will lead the way in analyzing monetary policy measures in complex economies.
Book Synopsis Monetary Policy Response to Oil Price Shocks by : Jean-Marc Natal
Download or read book Monetary Policy Response to Oil Price Shocks written by Jean-Marc Natal and published by DIANE Publishing. This book was released on 2010 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: How should monetary authorities react to an oil price shock? A trade-off between stabilizing inflation and the welfare relevant output gap arises in a distorted economy once one recognizes: (1) that oil (energy) cannot be easily substituted by other factors in the short-run; (2) that there is no fiscal transfer available to policymakers to neutralize the steady-state distortion due to monopolistic competition; and (3) that increases in oil prices also directly affect consumption by raising the price of fuel, heating oil, and other energy sources. The author derives an interest rate feedback rule that mimics the optimal plan in all relevant dimensions but that depends only on observables, namely core inflation, oil price inflation, and the growth rate of output. Illus.
Book Synopsis The Effects of Foreign Shocks when Interest Rates are at Zero by : Martin Bodenstein
Download or read book The Effects of Foreign Shocks when Interest Rates are at Zero written by Martin Bodenstein and published by . This book was released on 2009 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a two-country DSGE model, the effects of foreign demand shocks on the home country are greatly amplified if the home economy is constrained by the zero lower bound for policy interest rates. This result applies even to countries that are relatively closed to trade such as the United States. The duration of the liquidity trap is determined endogenously. Adverse foreign shocks can extend the duration of the liquidity trap, implying more contractionary effects for the home country; conversely, large positive shocks can prompt an early exit, implying effects that are closer to those when the zero bound constraint is not binding.
Book Synopsis Oil Shocks and Optimal Monetary Policy by : Carlos Montoro
Download or read book Oil Shocks and Optimal Monetary Policy written by Carlos Montoro and published by . This book was released on 2010 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: In practice, central banks have been confronted with a trade-off between stabilising inflation and output when dealing with rising oil prices. This contrasts with the result in the standard New Keynesian model that ensuring complete price stability is the optimal thing to do, even when an oil shock leads to large output drops. To reconcile this apparent contradiction, this paper investigates how monetary policy should react to oil shocks in a microfounded model with staggered price-setting and with oil as an input in a CES production function. In particular, we extend Benigno and Woodford (2005) to obtain a second order approximation to the expected utility of the representative household when the steady state is distorted and the economy is hit by oil price shocks. The main result is that oil price shocks generate an endogenous trade-off between inflation and output stabilisation when oil has low substitutability in production. Therefore, it becomes optimal for the monetary authority to stabilise partially the effects of oil shocks on inflation and some inflation is desirable. We also find, in contrast to Benigno and Woodford (2005), that this trade-off is reduced, but not eliminated, when we get rid of the effects of monopolistic distortions in the steady state. Moreover, the size of the endogenous "cost-push" shock generated by fluctuations in the oil price increases when oil is more difficult to substitute by other factors.
Book Synopsis On the Sources of Oil Price Fluctuations by : Deren Unalmis
Download or read book On the Sources of Oil Price Fluctuations written by Deren Unalmis and published by International Monetary Fund. This book was released on 2009-12-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Analyzing macroeconomic impacts of oil price changes requires first to investigate different sources of these changes and their distinct effects. Kilian (2009) analyzes the effects of an oil supply shock, an aggregate demand shock, and a precautionary oil demand shock. The paper's aim is to model macroeconomic consequences of these shocks within a new Keynesian DSGE framework. It models a small open economy and the rest of the world together to discover both accompanying effects of oil price changes and their international transmission mechanisms. Our results indicate that different sources of oil price fluctuations bring remarkably diverse outcomes for both economies.
Book Synopsis Essays on the Liquidity Trap, Oil Shocks, and the Great Moderation by :
Download or read book Essays on the Liquidity Trap, Oil Shocks, and the Great Moderation written by and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The thesis studies three distinct issues in monetary economics using a common dynamic general equilibrium approach under the assumptions of rational expectations and nominal price rigidity. The first chapter deals with the so-called liquidity trap an issue which was raised originally by Keynes in the aftermath of the Great Depression. Since the nominal interest rate cannot fall below zero, this limits the scope for expansionary monetary policy when the interest rate is near its lower bound. The chapter studies the conduct of monetary policy in such an environment in isolation from other possible stabilization tools (such as fiscal or exchange rate policy). In particular, a standard New Keynesian model economy with Calvo staggered price setting is simulated under various alternative monetary policy regimes, including optimal policy. The challenge lies in solving the (otherwise linear) stochastic sticky price model with an explicit occasionally binding non-negativity constraint on the nominal interest rate. This is achieved by parametrizing expectations and applying a global solution method known as collocation. The results indicate that the dynamics and sometimes the unconditional means of the nominal rate, inflation and the output gap are strongly affected by uncertainty in the presence of the zero lower bound. Commitment to the optimal rule reduces unconditional welfare losses to around one-tenth of those achievable under discretionary policy, while constant price level targeting delivers losses which are only 60% larger than under the optimal rule. On the other hand, conditional on a strong deflationary shock, simple instrument rules perform substantially worse than the optimal policy even if the unconditional welfare loss from following such rules is not much affected by the zero lower bound per se. The second thesis chapter (co-authored with Andrea Pescatori) studies the implications of imperfect competition in the oil market, and in particular the existence of.
Book Synopsis Oil and Inflation Compensation by : Hao Chang
Download or read book Oil and Inflation Compensation written by Hao Chang and published by . This book was released on 2020 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt: Why did the correlation between oil prices and 10-year TIPS Break-even Inflation, a measure of long-term inflation compensation, increase dramatically after the financial crisis? Using a shadow-rate no-arbitrage term structure model, we demonstrate that this is because when nominal interest rates bind at the zero lower bound (ZLB), investors doubt the effectiveness of monetary policy to control deflation. As a result, investors adjust their long-term inflation expectations more rapidly after negative oil price changes and pay higher premiums to hedge long-run deflation risks. We explain these findings by a stylized dynamic stochastic general equilibrium model including oil supply shocks, oil demand shocks, and a Taylor rule with the ZLB constraint.
Book Synopsis Monetary Policy Rules and Oil Price Shocks by : Christophe Kamps
Download or read book Monetary Policy Rules and Oil Price Shocks written by Christophe Kamps and published by . This book was released on 2002 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Monetary Policy Alternatives at the Zero Bound by : Ben S. Bernanke
Download or read book Monetary Policy Alternatives at the Zero Bound written by Ben S. Bernanke and published by www.bnpublishing.com. This book was released on 2009-03 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound. When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely on "non-standard" policy alternatives. To assess the potential effectiveness of such policies, we analyze the behavior of selected asset prices over short periods surrounding central bank statements or other types of financial or economic news and estimate "noarbitrage" models of the term structure for the United States and Japan. There is some evidence that central bank communications can help to shape public expectations of future policy actions and that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset.
Book Synopsis Inflation Expectations by : Peter J. N. Sinclair
Download or read book Inflation Expectations written by Peter J. N. Sinclair and published by Routledge. This book was released on 2009-12-16 with total page 402 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Book Synopsis Oil Shocks and External Adjustment by : Martin Bodenstein
Download or read book Oil Shocks and External Adjustment written by Martin Bodenstein and published by . This book was released on 2007 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Deconstructing the Monolith by : Jason E. Taylor
Download or read book Deconstructing the Monolith written by Jason E. Taylor and published by University of Chicago Press. This book was released on 2019-02-18 with total page 215 pages. Available in PDF, EPUB and Kindle. Book excerpt: The National Industrial Recovery Act (NIRA) was enacted by Congress in June of 1933 to assist the nation’s recovery during the Great Depression. Its passage ushered in a unique experiment in US economic history: under the NIRA, the federal government explicitly supported, and in some cases enforced, alliances within industries. Antitrust laws were suspended, and companies were required to agree upon industry-level “codes of fair competition” that regulated wages and hours and could implement anti-competitive provisions such as those fixing prices, establishing production quotas, and imposing restrictions on new productive capacity. The NIRA is generally viewed as a monolithic program, its dramatic and sweeping effects best measurable through a macroeconomic lens. In this pioneering book, however, Jason E. Taylor examines the act instead using microeconomic tools, probing the uneven implementation of the act’s codes and the radical heterogeneity of its impact across industries and time. Deconstructing the Monolith employs a mixture of archival and empirical research to enrich our understanding of how the program affected the behavior and well-being of workers and firms during the two years NIRA existed as well as in the period immediately following its demise.
Book Synopsis Exchange Rates, Oil Price Shocks, and Monetary Policy In an Economy with Traded and Non-Traded Goods by : Michael Plante
Download or read book Exchange Rates, Oil Price Shocks, and Monetary Policy In an Economy with Traded and Non-Traded Goods written by Michael Plante and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines monetary policy responses to oil price shocks in a small open economy that produces traded and non-traded goods. When only labor and oil are used in production and prices are sticky in the non-traded sector the behavior of inflation, the nominal exchange rate, and the relative price of the non-traded good depends crucially upon whether the ratio of the cost share of oil to the cost share of labor is higher for the traded or non-traded sector. If the ratio is smaller (higher) for the traded sector then a policy that fully stabilizes non-traded inflation causes the nominal exchange rate to appreciate (depreciate) and the relative price of the non-traded good to rise (fall) when there is a surprise rise in the price of oil. Similar results can hold for a policy that stabilizes CPI inflation. Under a policy that flexes the nominal exchange rate, non-traded inflation rises (falls) if the ratio is smaller (larger) for the traded sector. Analytical results show that a policy of fixing the exchange rate always produces a unique solution and that a policy of stabilizing non-traded inflation produces a unique solution so long as the nominal interest rate is raised more than one-for-one with rises in non-traded inflation. A policy that stabilizes CPI inflation, however, produces multiple equilibria for a wide range of calibrations of the policy rule.
Book Synopsis The Macroeconomic Effects of Higher Oil Prices by : Ben Hunt
Download or read book The Macroeconomic Effects of Higher Oil Prices written by Ben Hunt and published by . This book was released on 2001 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Oil, the Economy, and the Stock Market by : Joseph H. Davis
Download or read book Oil, the Economy, and the Stock Market written by Joseph H. Davis and published by . This book was released on 2008 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: We quantify the time-varying effects of oil-price shocks on the U.S. economy, Federal Reserve policy, and global equity markets. While the first-round impact of oil-price shocks on U.S. economic growth has not changed materially over time, their formerly-negative second-round effects are notably absent over the past 25 years given oil's near-zero impact on long-term inflation expectations. Since oil-price shocks now represent a less-stagflationary policy tradeoff, we show why the Federal Reserve should lower short-term interest rates in response to an oil-price shock under certain (but not all) macro scenarios. For domestic and international stocks, simple regressions reveal the anticipated inverse relationship, with a 10% increase in oil prices associated with a statistically significant 1.5% lower total return. However, the stock market's reaction varies dramatically depending on the source of the oil-price shock, with global stocks - in particular the industrial and materials sectors - responding quite favorably to oil-price increases attributed to global-demand shocks. A key implication is that oil-price increases do not uniformly lead to lower stock returns. Interestingly, our oil-price decomposition suggests that oil's recent surge cannot be explained by supply disruptions, global demand fundamentals, or the depreciation of the U.S. dollar.
