Kiel Working Papers, Kiel Institute for World Economics
No 1090:
Monetary Policy Rules and Oil Price Shocks
Christophe Kamps and Christian Pierdzioch
Abstract: This paper studies the relative performance of alternative
monetary policy rules in the presence of oil price shocks in a small open
economy optimizing model. Our analysis shows that it is important to
distinguish between alternative price indices (CPI, core CPI, and GDP
deflator) when modeling the effects of oil price increases. This
distinction has important implications for monetary policy as the central
bank has to decide which inflation rate to target. Our results demonstrate
that targeting the change in the GDP deflator is an inferior monetary
policy strategy in the presence of oil price shocks.
Keywords: Monetary policy rules; Open economy; Oil price shocks; Price indices; (follow links to similar papers)
JEL-Codes: E31; E32; E52; E58; F41; (follow links to similar papers)
37 pages, January 2002
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