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Christian-Albrechts-Universität zu Kiel

Institut für Volkswirtschaftslehre - Department of Economics
Economics Working Papers

Economics Working Papers: Abstract 2005-01




Hans-Werner Wohltmann, Roland Winkler




Dynamic Effects of Raw Materials Price Shocks for Large Oil-Dependent Economies - A revised version of this paper is available as EWP 2005-10
Abstract The paper analyzes the dynamic e®ects of anticipated price increases of imported raw materials upon two large open economies. It is assumed that the economies have an asymmetric macroeconomic structure on the supply side and are dependent upon a small third country for oil or raw materials imports. The dynamic behavior of several macroeconomic variables is discussed under alternative scenarios. We ¯rst assume that oil is priced in dollars. Thereafter, we investigate the impacts of oil price shocks on the domestic and the foreign economy if oil imports are denominated in terms of domestic currency (Euro) rather than US dollars. It is shown that with domestic-currency denominated oil the stag°ationary e®ects of oil price increases upon both the domestic and foreign economy are reduced. The paper also discusses several monetary policy responses to oil price shocks.

Keywords: oil price shocks, international policy coordination, time inconsistency, currency denomination

JEL classification: E63, F41, Q43




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