Monetary Effects on Nominal Oil Prices

Max Gillman; Anton Nakov

doi:10.1016/j.najef.2009.11.001

Monetary Effects on Nominal Oil Prices

Max Gillman, Anton Nakov

University of Missouri-St. Louis

Research output: Contribution to journal › Article › peer-review

Abstract

The paper presents a theory of nominal asset prices for competitively owned oil. Focusing on monetary effects, with flexible oil prices the US dollar oil price should follow the aggregate US price level. But with rigid nominal oil prices, the nominal oil price jumps proportionally to nominal interest rate increases. We find evidence for structural breaks in the nominal oil price that are used to illustrate the theory of oil price jumps. The evidence also indicates strong Granger causality of the oil price by US inflation as is consistent with the theory.

Original language	American English
Journal	North American Journal of Economics and Finance
Volume	20
DOIs	https://doi.org/10.1016/j.najef.2009.11.001
State	Published - Nov 18 2009

Keywords

cash-in-advance
granger causality
inflation
multiple structural breaks
oil prices

Disciplines

Business
Economics

Access to Document

10.1016/j.najef.2009.11.001License: Unspecified

gillmannakov2009najefpublished.pdfFinal published version, 424 KBLicense: Unspecified

Cite this

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AB - The paper presents a theory of nominal asset prices for competitively owned oil. Focusing on monetary effects, with flexible oil prices the US dollar oil price should follow the aggregate US price level. But with rigid nominal oil prices, the nominal oil price jumps proportionally to nominal interest rate increases. We find evidence for structural breaks in the nominal oil price that are used to illustrate the theory of oil price jumps. The evidence also indicates strong Granger causality of the oil price by US inflation as is consistent with the theory.

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KW - granger causality

KW - inflation

KW - multiple structural breaks

KW - oil prices

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