Castillo, Paul; Montoro, Carlos - Society for Computational Economics - SCE - 2006
In this paper we establish a link between the volatility of oil price shocks and a positive expected value of inflation … benchmark New Keynesian model with oil price shocks. In contrast with log linear approximations, the second order solution …, our analysis shows that oil price shocks along with a distorted steady state can generate a time-varying endogenous trade …