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Monetary Policy and Crude Oil

Prices, Production and Consumption

Basil Oberholzer

The global crude oil market is critically important in many respects. It is the fuel that drives the global economy and, as such, is the focus of climate policies. Moreover, crude oil is the basis of a tradable financial asset. It is therefore connected to several outstanding macroeconomic developments of recent years, including financial market fluctuations, the financial crisis and the exceptional conduct of monetary policy. This book investigates the impacts of monetary policy and the financial system on the global crude oil market. Furthermore, it outlines how monetary policy may also be used to guarantee stability and to contribute to ecological sustainability.
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Chapter 6: An economically stable way out of fossil energies

Prices, Production and Consumption

Basil Oberholzer

Extract

The final chapter summarizes the previously discussed policy approaches and develops a new proposition that merges the advantages but avoids the shortcomings of the former. In the so-called oil price targeting system, monetary policy determines the level of the oil price. Thereby, economic stability and ecological sustainability can be achieved. To prevent spot market imbalances, this monetary policy instrument is combined with fiscal policy. The approach is illustrated by means of the stock-flow consistent model. Potential critical arguments like the feasibility of the oil price targeting system, central bank independence or impacts on inflation are debated.

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