Monetary Policy and the Oil Futures Market
32 Pages Posted: 20 Jun 2013
Date Written: November 1, 2012
We assess the transmission of monetary policy shocks on oil prices using a VAR model. We identify monetary policy and financial activity shocks disentangled from demand and oil supply shocks using sign restrictions. We obtain the following main findings. (i) Monetary policy and financial activity shocks both have a significant effect on the oil price. (ii) Monetary policy has made large positive contributions to oil price growth in 2008. (iii) Monetary policy affects the oil price primarily through fundamental (supply and demand) channels rather than through financial activity.
Keywords: oil prices, monetary policy, financial activity, VAR model, sign restrictions
JEL Classification: E52, C32, Q41, Q31
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