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Impact of Expansionary Monetary Policy on Crude Oil Prices

In: Monetary Policy and the Oil Market

Author

Listed:
  • Farhad Taghizadeh-Hesary

    (Keio University)

  • Naoyuki Yoshino

    (Asian Development Bank Institute (ADBI))

Abstract

While the oil price shocks of the 1970s can be explained by pure supply factors, starting in the 1980s oil prices increasingly began to come under a different type of pressure. Oil prices accelerated from about $35 per barrel in 1981 to beyond $111 per barrel in 2011. At the same time interest rates subsided from 16.7 % per annum to about 0.1 %. This chapter explains how this long-term price increase in most cases, was caused by expansionary monetary policies that heightened oil prices through interest rate channels. Aggressive monetary policies stimulated oil demand and blew up oil prices, a trend that led to slower economic growth. As for elasticities the results described in this chapter show that demand is price elastic and, unlike some earlier literature states, it is significantly elastic to income too. In the last section, the results show that oil prices adjust instantly, declaring the existence of equilibrium in the oil market during the period from 1960 to 2011.

Suggested Citation

  • Farhad Taghizadeh-Hesary & Naoyuki Yoshino, 2016. "Impact of Expansionary Monetary Policy on Crude Oil Prices," ADB Institute Series on Development Economics, in: Naoyuki Yoshino & Farhad Taghizadeh-Hesary (ed.), Monetary Policy and the Oil Market, edition 1, chapter 0, pages 7-27, Springer.
    • Handle: RePEc:spr:adbchp:978-4-431-55797-5_2
    DOI: 10.1007/978-4-431-55797-5_2
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    Citations

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    Cited by:

    1. Farhad Farhad Taghizadeh-Hesary, 2015. "Macroeconomic effects of oil price fluctuations on emerging and developed economies in a model incorporating monetary variables," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2015(2), pages 51-75.
    2. Grzegorz Przekota, 2022. "Do High Fuel Prices Pose an Obstacle to Economic Growth? A Study for Poland," Energies, MDPI, vol. 15(18), pages 1-15, September.

    More about this item

    Keywords

    Oil market; Monetary policy; Interest rate; Equilibrium vs. disequilibrium;
    All these keywords.

    JEL classification:

    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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