Oil prices and the economy: A global perspective

Ronald Ratti and Joaquin Vespignani

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the relationship between oil prices and the global economy. In modelling this relationship, a new approach is proposed in which we introduce the use of a factor error correction model to compress data from the largest developed and developing economies. An important feature of this model is that at global level, we find that global money, output and prices are cointegrated, which is supportive of the quantity theory of money. Positive innovation in global oil price is connected with global interest rate tightening. Positive innovation in global money, CPI and outputs is connected with an increase in oil prices while positive innovations in global interest rate are associated with a decline in oil prices. The US, Euro area and China variables are the main drivers of global factors

Keywords: Global interest rate; global monetary aggregates; oil prices; GFVEC (search for similar items in EconPapers)
JEL-codes: E0 E00 E02 E4 E40 F0 (search for similar items in EconPapers)
Date: 2014-08-01
New Economics Papers: this item is included in nep-ene and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Oil prices and the economy: A global perspective (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:59407

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