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The impact of monetary policy on oil price persistence: An application of the smooth regime-switching model
Authors:Po-Chin Wu  Shiao-Yen Liu  Sheng-Chieh Pan
Institution:1. Department of International Business, Chung Yuan Christian University, Chung Li, Taiwanpochin@cycu.edu.tw;3. Department of International Business, Chung Yuan Christian University, Chung Li, Taiwan;4. Department of Tourism and Leisure Management, China University of Technology, Hsinchu, Taiwan
Abstract:This paper employs the smooth transition autoregressive model to evaluate the persistence of oil price changes, and chooses monetary policy variables as transition variables of the model to assess their roles in the persistence effects. The empirical results show that oil price changes displayed asymmetric adjustments within different regimes and were more sensitive to the movement of interest rates than inflation rate. In addition, high inflation rate would give rise to low oil price persistence, and expansionary monetary policy would bring about higher oil price persistence. Moreover, when the short- and long-term interest rates were over their threshold values, the persistence effects of oil price changes were opposite. In the present relatively low US interest rates, adopting either an inflation-targeting policy or/and a debt-financing policy to stimulate economic growth, the timing is appropriate and the effect will be positive and expected because of low persistence of oil price changes.
Keywords:time-series analysis  structural change  monetary policy
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