Granger Predictability of Oil prices after the Great Recession

Real oil prices surged from 2009 through 2014, comparable to the 1970’s oil shock period.

Standard explanations based on monopoly markup fall short since inflation remained low

after 2009. This paper contributes strong evidence of Granger (1969) predictability of

nominal factors to oil prices, using one adjustment to monetary aggregates. This adjustment

is the subtraction from the monetary aggregates of the 2008-2009 Federal Reserve borrowing

of reserves from other Central Banks (Swaps), made after US reserves turned negative. This

adjustment is key in that Granger predictability from standard monetary aggregates is found

only with the Swaps subtracted.

JEL Classification Numbers: Q43, E510, E520