Monetary Policy, Oil Prices and the Real Macroeconomic Variables: An Empirical Survey on China, Japan and the United States

Abstract

This article examines the impact of US monetary policy as the world dominant monetary policy on the global crude oil prices and investigates the impact of oil price fluctuations on two real macro variables (gross domestic product [GDP] and inflation rate) of three global major crude oil consumers: the People’s Republic of China (an emerging economy), and Japan and the United States (developed economies). To assess the relationship between monetary variables, crude oil prices and macro variables, the authors adopt an N-variable structural vector autoregression (SVAR) model. The results suggest that the monetary policy had a significant positive impact on oil prices during 2001–13 through two different channels (quantitative easing and exchange rate fluctuations). Also, the impact of oil price fluctuations on developed oil importers’ GDP growth is much milder than on the GDP growth of an emerging economy. However, the impact on the China’s inflation rate is found to be less severe compared to the two developed countries.