Monetary Policy Rules and Oil Price Shocks

Kiel Working Paper No. 1090

40 Pages Posted: 6 Jul 2005

See all articles by Christophe Kamps

Christophe Kamps

European Central Bank (ECB)

Christian Pierdzioch

Saarland University - Department of Economics and Statistics

Date Written: January 2002

Abstract

This paper studies the relative performance of alternative monetary policy rules in the presence of oil price shocks in a small open economy optimizing model. Our analysis shows that it is important to distinguish between alternative price indices (CPI, core CPI, and GDP deflator) when modeling the effects of oil price increases. This distinction has important implications for monetary policy as the central bank has to decide which inflation rate to target. Our results demonstrate that targeting the change in the GDP deflator is an inferior monetary policy strategy in the presence of oil price shocks.

Keywords: Monetary policy rules, open economy, oil price shocks, price indices

JEL Classification: E31, E32, E52, E58, F41

Suggested Citation

Kamps, Christophe and Pierdzioch, Christian, Monetary Policy Rules and Oil Price Shocks (January 2002). Kiel Working Paper No. 1090, Available at SSRN: https://ssrn.com/abstract=753006 or http://dx.doi.org/10.2139/ssrn.753006

Christophe Kamps (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 20
D-60314 Frankfurt am Main
Germany

HOME PAGE: http://https://www.ecb.europa.eu/pub/research/authors/profiles/christophe-kamps.en.html

Christian Pierdzioch

Saarland University - Department of Economics and Statistics ( email )

P.O. Box 151150
D-66041 Saarbruecken
Germany
+49 681 302 58195 (Phone)
+49 681 302 58193 (Fax)

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