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Oil shocks and monetary policy rules in emerging economies

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We examine the effects of shocks in the oil market on key macroeconomic variables in small open economies using a dynamic stochastic general equilibrium model with sticky prices and imperfect competition under different monetary policy rules. The numerical solutions show that the types of exchange rate regimes and monetary policies could partly explain the trends in macroeconomic volatilities considering negative shocks to oil supply (Hamilton, 1983) and positive shocks to oil demand (Kilian, 2009). These findings are confirmed in vector autoregressive responses for Chile and Israel with inflation targeting under flexible exchange regimes and Hong Kong with fixed regime.

Keywords: E52; F31; F41; exchange rate regimes; inflation and output volatility; inflation targeting; oil shock

Document Type: Research Article


Affiliations: 1: Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore 2: Asset and Liability Management, Manulife Financial, Toronto, Canada

Publication date: December 1, 2013

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