The Macroeconomic Effects of Higher Oil Prices

47 Pages Posted: 31 Jan 2006  

Ben Hunt

International Monetary Fund (IMF) - Research Department

Peter Isard

International Monetary Fund (IMF) - Research Department

Douglas Laxton

International Monetary Fund (IMF) - Research Department

Date Written: January 2001

Abstract

The paper uses MULTIMOD to analyze the macroeconomic effects of oil price shocks, distinguishing between temporary, more persistent, and permanent shocks. It provides perspectives on several findings in the literature and the key role of monetary policy in influencing macroeconomic outcomes. Specific attention is paid to the channels through which oil price increases can pass through into core inflation, a possible explanation of the asymmetric relationship between oil prices and economic activity, the role of monetary policy credibility, the implications of delayed policy responses, and the relative merits of leaning in different directions when the correct policy response is uncertain.

Keywords: oil price shocks, MULTIMOD, monetary policy

JEL Classification: E3, E52

Suggested Citation

Hunt, Ben and Isard, Peter and Laxton, Douglas, The Macroeconomic Effects of Higher Oil Prices (January 2001). IMF Working Paper, Vol. , pp. 1-47, 2001. Available at SSRN: https://ssrn.com/abstract=879341

Benjamin Hunt (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Peter Isard

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Douglas Laxton

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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