Journal
JOURNAL OF MONETARY ECONOMICS
Volume 51, Issue 4, Pages 781-808Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jmoneco.2003.09.004
Keywords
oil; monetary policy; recessions
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Are the recessionary consequences of oil-price shocks due to oil-price shocks themselves or to the monetary policy that responds to them? We investigate this question in a calibrated general equilibrium model in which oil use is tied to capital utilization. The response to an oil-price shock is examined under a variety of monetary policy specifications. Under our benchmark calibration, which approximates the Federal Reserve's behavior since 1979, monetary policy contributes about 40 percent to the drop in output following a rise in oil prices. Moreover, none of the commonly proposed policies we examine completely offsets the recessionary consequences of oil shocks. (C) 2003 Elsevier B.V. All rights reserved.
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