Journal Article

Oil Shocks when Interest Rates Are at the Zero Lower Bound

Abstract: New evidence suggests that rising oil prices associated with declining oil supply slow economic activities less when interest rates are constrained at the zero lower bound. Moreover, these oil price spikes can even increase overall output. Evidence points to the following explanation. An oil supply shock raises inflation in all periods, but the nominal interest rate does not react under the zero lower bound, so the shock reduces the real interest rate, stimulating demand in the economy.

Keywords: oil; oil prices; supply shocks; interest rates; zero lower bound;

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Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: FRBSF Economic Letter

Publication Date: 2022-11-30

Volume: 2022

Issue: 34

Pages: 5

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