Oil Price Shocks, Rigidities and the Conduct of Monetary Policy

摘要: The strong and sustained rise in oil prices observed recent years poses a challenge to monetary policy its ability simultaneously achieve low inflation stable output. Against this background, the paper studies small open economy New Keynesian DSGE model including as production input component of final demand. It investigates performance alternative price level definitions, notably headline core CPI, standard interest rate rules with respect output stabilisation. analysis puts special emphasis on impact real wage rigidity their interaction trade-off induced by shock. While degree alone is found have little shock transmission generates only differences between strategies, simulations suggest more important role for stickiness. Real stickiness triggers second round effects complicates stabilisation whatever rule. A focus tends limit contraction context. results also point some nominal rigidities. In presence rigidity, greater flexibility be destabilising, it amplifies initial effect shocks, thereby triggering stronger response larger effect.