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Oil Price Shocks and Monetary Policy in an Asymmetric Monetary Union

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  • Wohltmann, Hans-Werner
  • Clausen, Volker

Abstract

This paper analyzes the dynamic effects of anticipated and unanticipated oil price increases in a small two-country monetary union, which is simultaneously characterized by asymmetric wage adjustments and asymmetric interest rate sensitivities of private absorption. It is shown that both types of oil price disturbances lead to temporary divergences in output developments across the monetary union. In the case of anticipated oil price increases the relative cyclical position of output effects is reversed in the course of the adjustment process. With anticipated oil price increases complete stabilization of the output variables throughout the overall adjustment process requires restrictive monetary policy to be time-inconsistent from a quantitative but time-consistent from a qualitative point of view. That means that the central bank credibly announces a future reduction in the growth rate of nominal money stock but actually realizes a decrease in the monetary growth rate, which is less restrictive than the announcement.

Suggested Citation

  • Wohltmann, Hans-Werner & Clausen, Volker, 2003. "Oil Price Shocks and Monetary Policy in an Asymmetric Monetary Union," Economics Working Papers 2003-11, Christian-Albrechts-University of Kiel, Department of Economics.
    • Handle: RePEc:zbw:cauewp:1121
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    References listed on IDEAS

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    7. Clausen, Volker & Wohltmann, Hans-Werner, 2005. "Monetary and fiscal policy dynamics in an asymmetric monetary union," Journal of International Money and Finance, Elsevier, vol. 24(1), pages 139-167, February.
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    Cited by:

    1. Clausen Volker & Wohltmann Hans-Werner, 2013. "Oil Price Dynamics and Monetary Policy in a Heterogeneous Monetary Union," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 233(2), pages 159-187, April.

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    More about this item

    Keywords

    EMU; international policy transmission; oil price shock; time inconsistency;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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