Location of Repository

Effects of Oil Price on Monetary Policy in Major Oil-Exporting Countries

By Pouya Jabal Ameli

Abstract

This thesis investigates impacts of oil price on monetary policy in oil-exporting countries.\ud The second chapter reviews the forward-looking new Keynesian model, to show the need for credibility and conservativeness in order to have less inflation, which are the theoretical foundations of central bank independence (CBI). Then by defining CBI in detail and reviewing indices for CBI, the thesis looks at the empirical works undertaken in countries to see whether or not theory is supported in the real world.\ud In the third chapter, the thesis applies central bank independence index to assess empirically the impact of an oil price shock on monetary policy in oil-exporting countries.\ud Two legal central bank independence indices are chosen and calculated for the top nine oil-exporting countries. Using a panel data set and a fixed effects model, it is shown that a monetary authority with higher central bank independence implements a more contractionary (or less expansionary) monetary policy after an increase in oil price compared to another central bank which is more dependent.\ud Chapter four considers linearity and specification tests along with estimating in vector smooth transition regression (VSTR) models and tries to improve them. In the empirical section, a VAR model with time varying coefficients are proposed to analyse the relationship between inflation and monetary policy in Iran as an oil-based economy. The form of coefficients is a logistic smooth transition function and oil price is used as the transition variable. This VSTR model has two different regimes based on high and low oil price and they have different dynamic properties. The model supports the asymmetric effects of real money and oil price on inflation and shows that the central bank cares more about inflation in the regime with high levels of oil price. This chapter also shows that forecasting of inflation with the VSTR is superior to forecasting using the linear VAR

Publisher: University of Leicester
Year: 2011
OAI identifier: oai:lra.le.ac.uk:2381/9286

Suggested articles

Preview

Citations

  1. (2001). A new composite index of coincident indicators in Japan: how can we improve the forecast performance?,
  2. (2006). A Phillips Curve with an Ss Foundation;
  3. (1987). A simple Positive Semi-Definite,
  4. (1980). Aggregate Dynamics and Staggered Contracts;
  5. (1998). An Econometric Characterization of Business Cycles with Factor Structure and Markov switching,
  6. (2003). Analysis of Panel Data, 2nd ed.
  7. (2008). Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean,
  8. (2002). Are the effects of monetary policy asymmetric?,
  9. (1994). Business cycle phases and their transitional dynamics.
  10. (1998). Business cycle turning points, a new coincident index and tests of duration dependence based on a dynamic factor model with Markov switching,
  11. (1994). Business Cycles and the Oil Market; The Energy Journal; 15; Special Issue,
  12. (2004). Business cycles asymmetry and monetary policy: a further investigation using MRSTAR models,
  13. (2000). Causality and regime inference in a Markov switching VAR. The central bank of Sweden, Working
  14. (2007). Central Bank Autonomy: Lessons from Global Trends, IMF Working Paper 0788.
  15. (2009). Central bank independence and financial instability,
  16. (1997). Central Bank Independence and Inflation Targeting: Monetary Policy Paradigms for the New millennium?;
  17. (2009). Central Bank Independence and Inflation Targeting: The Case of Romania;
  18. (2009). Central Bank Independence and Inflation:
  19. (1999). Central Bank Independence and Inflation: Corporatism, Partisanship, and Alternative Indices of Central Bank Independence,
  20. (1998). Central Bank Independence and Inflation: Good News and Bad News,
  21. (1993). Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence;
  22. (1994). Central Bank Independence and Monetary Control,
  23. (2008). Central Bank Independence and Monetary Policy Making Institutions: Past, Present, and Future,
  24. (1993). Central Bank Independence in Twelve Industrial Countries, Banca Nazionale del Lavoro Quarterly Review;
  25. (1998). Central bank Independence- Conceptual Clarifications and Interim Assessment,
  26. (2006). Central Bank Independence- Economic and Political Dimensions,
  27. (2008). Central Bank Independence, Disinflations and Monetary Policy,
  28. (2004). Central Bank Independence, Disinflations and Sacrifice Ratio,
  29. (2001). Central Bank Independence, Economic Freedom, and Inflation Rates,"
  30. (1997). Central Bank Independence, Inflation and Growth in Transition Economies,
  31. (2001). Central Bank Independence: an Update of Theory and Evidence,
  32. (2004). Central Bank Independence: Low Inflation at no Cost? A Numerical Simulations Exercise,
  33. (1985). Central bank laws and monetary policy: A Preliminary Investigation,
  34. (2001). Central Bank Reform, Liberalization and Inflation in Transition Economies - An International Perspective, CEPR Discussion Papers 2808, C.E.P.R. Discussion Papers.
  35. (2002). Central Bank Reform, Liberalization and Inflation in Transition Economies: an International Perspective,
  36. (1992). Central Bank Strategy, Credibility and Independence: Theory and Evidence;
  37. (1995). Central-Bank Independence Revisited,
  38. (1992). Characterizing nonlinearities in business cycles using smooth transition autoregressive models,
  39. (2002). Checks and Balances, Private Information,
  40. (1995). Comparing Predictive Accuracy,
  41. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root,
  42. (1993). Do recessions permanently change output?,
  43. (1994). Do We Really Want an Independent Central Bank?,
  44. (2000). Does Central Bank Independence Really Matter? New Evidence for Developing Countries Using a New Indicator,
  45. (2009). Does High M4 Money Growth Trigger Large Increases in UK Inflation? Evidence from a Regime-switching Model, Oxford Economic Papers;
  46. (1989). Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz,
  47. (2011). Does Money Growth Granger Cause Inflation in the Euro Area? Evidence from Out-of-Sample Forecasts Using Bayesian VARs, The Economic Record;
  48. (1987). Domestic Monetary Institutions and Deficits,
  49. (2002). Econometric analysis of cross section and panel data, The
  50. (2003). EMU membership and business cycle phases in Europe: a Markov switching VAR analysis,
  51. (1994). Estimation and inference for dependent processes. In: Handbook of Econometrics;
  52. (1998). Evaluating Density Forecasts with Applications to Financial Risk Management,
  53. (1996). Evidence on structural instability in macroeconomic time series relations,
  54. (2007). Exchange Rate Choice under Central Bank Independence;
  55. (2010). Exchange Rate Regimes and Independent Central Banks: A Correlated Choice of Imperfectly Credible Institutions;
  56. (2008). Fiscal Theory of the Price Level, The New Palgrave: a Dictionary of Economics,"
  57. (1999). Forecasting Swedish inflation with a Markov switching approach, The central bank of Sweden, Working
  58. (2008). Goal Independent Central Banks: Why Politicians Decide to Delegate,
  59. (1994). How Independent Should a Central Bank be?
  60. (1977). Hypothesis testing when a nuisance parameter is present only under the alternative.
  61. (1992). Identification and Liquidity Effect of a Monetary Policy Shock,
  62. (2008). Identifying the New Keynesian Phillips Curve;
  63. (1996). Imperfect Competition and the Effects of Energy Price Increases on Economic Activity,
  64. (2005). Implementing optimal policy through inflationforecast targeting. In: Bernanke,
  65. (2000). Inflation and Central Bank Independence: Conventional Wisdom Redux’,
  66. (1999). Inflation Dynamics: A Structural Econometric Analysis;
  67. (1997). Inflation Forecasts and Monetary Policy;
  68. (2003). Inflation Performance and Constitutional Central Bank Independence: Evidence From Latin America and the Caribbean, IMF Working Papers 03/53.
  69. (2003). Inflation persistence: how much can we explain?, Economic Review, Federal Reserve Bank of Atlanta, issue Q2,
  70. (2002). Instrument Variable Estimation of a Nearly Nonstationary, Heterogeneous Error Components Model,
  71. (2003). Interest and Prices,
  72. (2008). Iran’s oil as a blessing and a curse.
  73. (2001). Is the Price Level Determined by the Needs of Fiscal Solvency?;
  74. (2005). Is the response of output to monetary policy asymmetric? Evidence from a regime-switching coefficients model,
  75. (1988). Lagrange multiplier tests for testing non-linearities in time series models,
  76. (1977). Long-term Contracts, Rational Expectations, and the Optimal Money Supply Rule;
  77. (1992). Macroeconomic Policy and Long-Run Growth, Federal Reserve Bank of Kansas City, Economic Review;
  78. (1988). Macroeconomics and Politics,
  79. (2002). Markov switching in disaggregate unemployment rates,
  80. (1997). Markov-switching vector autoregressions, Modelling, Statistical Inference and Application to Business Cycle Analysis,
  81. (2006). Measures of Central Bank Autonomy: Empirical Evidence for OECD, Developing, and Emerging Market Economies, IMF Working Paper 06228.
  82. (1996). Measuring business cycles: a modern perspective,
  83. (2003). Measuring Central Bank Independence: a Latent Variables Approach;
  84. (1998). Measuring Central Bank Independence: a Tale of Subjectivity and of its Consequences,
  85. (1992). Measuring the Independence of Central Bank and its Effect on Policy Outcomes, World Bank Economic Review;
  86. (2007). Menu Costs and the Phillips Curve;
  87. (1999). Modeling non-linearities in real effective exchange rates,
  88. (1998). Modelling economic relationships with smooth transition regressions.
  89. (1993). Modelling nonlinear economic relationships,
  90. (1993). Modelling nonlinearities over the business cycle.
  91. (1995). Modelling nonlinearity in U.S. gross national product 1889–1987.
  92. (2009). Monetary and Fiscal Policy Interaction: The Current Consensus Assignment in the Light of Recent Developments,
  93. (2009). Monetary Conservatism and Fiscal Policy,
  94. (1994). Monetary policy and price level determinacy in a cash-in-advance economy,
  95. (2008). Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework; Princeton:
  96. (2001). Monetary Policy, Oil price Shocks, and the Japanese Economy; Japan and the World Economy;
  97. (1997). Monetary Politics and Unemployment Persistence;
  98. (2008). Money and inflation in the Islamic Republic of Iran,
  99. (1996). Nominal Price Rigidity, Money Supply Endogeneity, and Business Cycles;
  100. (2008). Nonlinear econometric models: The smooth transition regression approach, The Centre for Economic Research and Graduate Education: working Paper.
  101. (1999). Nonlinear time series modelling: an introduction,
  102. (2000). Nonlinear time series models in empirical finance,
  103. (1983). Oil and Macroeconomy Since World War II,
  104. (2004). Oil and the Macroeconomy Since the 1970s;
  105. (2009). Oil exports and the Iranian economy, Working Paper.
  106. (2005). Oil price shocks and real GDP growth: empirical evidence for some OECD countries,
  107. (1969). On the Aggregation Problem: a New Approach to a Troublesome Problem, In
  108. (1999). Optimal Monetary Policy Inertia,
  109. (2002). Permanent and transitory components of recessions.
  110. (2000). Pitfalls of Forward-Looking Monetary Policy;
  111. (1996). Political and Economic Determinants of Interest Rate Behavior: Are Central Banks Different?,
  112. (2000). Predicting Markov-switching vector autoregressive processes.
  113. (1998). Predicting US recessions: financial variables as leading indicators,
  114. (1996). Problems in Measuring Central Bank Independence,
  115. (1975). Rational Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule;
  116. (2004). Reflections on the Current Fashion for Central Bank Independence,
  117. (1994). Reputation, Central Bank Independence and the ECB,
  118. (1977). Rules Rather than Discretion: the Inconsistency of Optimal Plans,
  119. (1983). Rules, Discretion, and Reputation in a Positive Model of Monetary Policy;
  120. (1993). Rules, Reputation and Macroeconomic Policy Coordination; Cambridge:
  121. (2002). Smooth transition autoregressive models - A survey Of recent developments,
  122. (2009). Sources of economic growth and stagnation in Iran,
  123. (1994). Specification, estimation and evaluation of smooth transition autoregressive models.
  124. (2007). Staggered price contracts and inflation persistence: Some general results,
  125. (1983). Staggered Prices and in a Utility-Maximizing Framework;
  126. (1999). Staggered wage and price setting in macroeconomics. In:
  127. (1999). State Dependent Pricing and the General Equilibrium Dynamics of Money and Output;
  128. (2000). Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem,
  129. (1999). Stock market fluctuations and the business cycle,
  130. (1994). Subsample instability and asymmetries in money-income causality,
  131. (1984). Supply Shocks and Monetary Policy Revisited,
  132. (1989). Targets, Indicators and Instruments of Monetary Policy,
  133. (2008). Testing for Granger (non-)causality in a timevarying coefficient VAR model,
  134. (1984). Testing for the Effects of Oil-price Rise Using Vector Autoregressions,
  135. (2003). Testing for unit roots in heterogeneous panels,
  136. (1999). Testing linearity in univariate time series models,
  137. (1996). Testing the adequacy of smooth transition autoregressive models,
  138. (1988). The Advantage of Tying One’s Hands: EMS Discipline and Central Bank Credibility;
  139. (1999). The Asymmetric effects of monetary policy.
  140. (1988). The Borrowed-Reserves Operating Procedure: Theory and Evidence, Federal Reserve Bank of St. Louis, Review;
  141. (1992). The Case for Central Bank Independence, Banca Nazionale del Lavoro Quarterly Review;
  142. (1995). The Disadvantage of Tying Their Hands: On the Political Economy of Policy Commitments;
  143. (2006). The Effect of Central Bank Independence on Inflation in Developing Countries,
  144. (2007). The Evolution of Central Bank Governance around the World,
  145. (1992). The Federal Funds Rate and the Channels of Monetary Transmission,
  146. (1994). The Federal Reserve Operating Procedure, 1984-1990: An Empirical Analysis,
  147. (2000). The Fiscal Theory of the Price Level; Economic Review; Federal Reserve Bank of Cleveland,
  148. (2002). The fiscal theory of the price level: A critique;
  149. (2003). The inflation Bias Revisited: Theory and Some International Evidence,
  150. (2009). The Iranian economy in the Twentieth Century: A Global Perspective,
  151. (1980). The lagrange multiplier test and Its applications to model specification in Econometrics,
  152. (2007). The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?, NBER Working Paper No.
  153. (1996). The Political Economy of Central Bank Independence, Special Papers
  154. (2003). The Political Economy of Inflation, Labour Market Distortions and Central Bank Independence,
  155. (2002). The Political Economy of Monetary Institutions;
  156. (2005). The Relation between U.S. Money Growth and Inflation: Evidence from a Band-pass Filter,
  157. (1991). The Relationship between the Inflation Rate and its Variability: The Issues Reconsidered,
  158. (1999). The Science of Monetary Policy: A New Keynesian Perspective;
  159. (1996). This is what happened to the oil price-macroeconomy relationship,
  160. (2002). This is what the US leading indicators lead,
  161. (1995). To check forecasts, other criteria such as those suggested by Diebold and Mariano
  162. (1993). Unit Root Test in Panel Data: Asymptotic and Finite-Sample Properties,
  163. (2002). Unit root tests in panel data: asymptotic and finite sample properties,
  164. (2006). Using Structural Balance Data to Test the Fiscal Theory of the Price Level: Some International Evidence;
  165. (2004). Vector smooth transition regression models for US GDP and the composite index of leading indicators,
  166. (1996). What do the leading indicators lead?,
  167. (1993). Why Central Bank Independence Does not Cause Low Inflation. There Is no Institutional Fix for Politics,
  168. (1997). Why does inflation differ across countries?

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.