Oil return, fed funds and the dollar from 1987 to 2013 - preliminary; please do not quote or cite without the authors´ permission

After the oil crises in the 70´s and at the beginning of the 80´s, many authors argued that the FED´s reaction to oil prices is not optimal and suggested to drop the energy component from the reaction function. This paper studies the period of 1987-2013 and shows that: (1) the FED responded to oil price inflation, (2) expansionary monetary policy fueled the surge in oil price only when it was accompanied by a depreciation of the US dollar and (3) the drop in the dollar´s value increased oil prices only when fed funds rates were decreased.