Working Paper

How Oil Shocks Propagate: Evidence on the Monetary Policy Channel

Abstract: Using high-frequency responses of oil futures prices to prominent oil market news, we estimate the effects of oil supply news shocks when systematic monetary policy is switched off by the zero lower bound (ZLB) and when it is not (normal periods) in Japan, the United Kingdom, and the United States. We find that negative oil supply news shocks are less contractionary (and even expansionary) at the ZLB compared to normal periods. Inflation expectations increase during both periods, while the short nominal interest rates remain constant at the ZLB, pointing to the importance of monetary policy for oil shock propagation.

Keywords: oil price shocks; high-frequency identification; Zero Lower Bound (ZLB); monetary policy;

JEL Classification: E5; E7; G4;

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Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2023-12-10

Number: 2024-06

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