Oil Price Shocks and Monetary Policy in a Data-Rich Environment
51 Pages Posted: 26 May 2013
Date Written: April 4, 2013
Abstract
This paper examines the impact of different types of oil price shocks on the U.S. economy, using a factor-augmented VAR (FAVAR) approach. The results indicate that when examining the effects of oil price shocks, it is important to account for the interaction between the oil market and the macroeconomy. I find that oil demand shocks are more important than oil supply shocks in driving several macroeconomic variables, and that the origin of demand shocks matter. Specifically, the U.S. economy and monetary policy respond differently to global demand shocks that have the effect of raising the price of oil and to oil-specific demand shocks.
Keywords: Oil demand shocks, Oil supply shocks, Business cycle, Monetary policy, Factor model, FAVAR
JEL Classification: C3, E31, E32, E4, E5, Q43
Suggested Citation: Suggested Citation
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