Monetary Effects on Nominal Oil Prices

35 Pages Posted: 8 Dec 2009

See all articles by Max Gillman

Max Gillman

Central European University (CEU) - Department of Economics

Anton Nakov

European Central Bank (ECB); CEPR

Date Written: December 3, 2009


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.

Keywords: oil prices, infl ation, cash-in-advance, multiple structural breaks, Granger causality

JEL Classification: E31, E4

Suggested Citation

Gillman, Max and Nakov, Anton A., Monetary Effects on Nominal Oil Prices (December 3, 2009). Banco de Espana Working Paper No. 0928, Available at SSRN: or

Max Gillman (Contact Author)

Central European University (CEU) - Department of Economics ( email )

Nador u. 9.
Budapest H-1051
+36 1 327 3227 (Phone)
+36 1 327 3232 (Fax)

Anton A. Nakov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

CEPR ( email )

United Kingdom

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