Easy-inflation policies worsen economic downturns caused by oil-price shocks.
Oil-price shocks can cause economic downturns, but it's not just the oil prices themselves. Monetary policies that try to control inflation can make things worse. By studying a model of how businesses compete and how money works, researchers found that certain monetary policies can make the economy suffer more from oil-price increases. However, if the policy focuses on keeping prices stable overall, the impact of oil-price shocks can be reduced significantly.