Revisiting the impacts of oil price increases on monetary policy implementation in the largest oil importers


Yildirim N. , Ozcelebi O. , Ozkan S. O.

ZBORNIK RADOVA EKONOMSKOG FAKULTETA U RIJECI-PROCEEDINGS OF RIJEKA FACULTY OF ECONOMICS, vol.33, no.1, pp.11-35, 2015 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 33 Issue: 1
  • Publication Date: 2015
  • Title of Journal : ZBORNIK RADOVA EKONOMSKOG FAKULTETA U RIJECI-PROCEEDINGS OF RIJEKA FACULTY OF ECONOMICS
  • Page Numbers: pp.11-35

Abstract

The aim of this paper is to test the impacts of oil price increases on monetary policy implementation in the largest oil importers. For that purpose, we estimate structural vector error correction (SVEC) models to show the impacts of oil price increases on industrial production, consumer prices and immediate interest rates which are the elements of Taylor rule for the four largest oil importers (the USA, the EU, China and Japan). Our results indicate that oil price increases transmit to output and inflation and lead to fluctuations in industrial production, consumer prices and immediate interest rates which in turn influence the monetary policy stance in the following periods. The basic conclusion of research is that the channels through which oil prices affect output, inflation and interest rates should be identified by the monetary policy authorities of the USA, the EU, China and Japan. We also emphasize the importance of the determination of the optimal monetary policy framework to eliminate the negative consequences of oil price increases.