Long term oil stocks

Here's the inference that Ana and I drew from the exercise:

We conclude that the potential of monetary policy to avert the contractionary consequences of an oil price shock is not as great as suggested by the analysis of Bernanke, Gertler, and Watson. Oil shocks appear to have a greater effect on the economy than suggested by their VAR, and we are unpersuaded of the feasibility of implementing the monetary policy needed to offset even their small shocks. Econobrowser 

The economy is taking small Bellman steps along the oil constraint, maximizing long term oil stocks. This is what happens when oil is constrained, the economy operates as if it is measuring long term oil stocks with greater accuracy than other inputs.

In electronic terms this is an impedance mismatch, the Fed attempts a  change in short term money, and the entire oil chain gives a simultaneous nudge back. Most of the Fed energy causes volatility, short term contraction and restoration to the mean is swift. The oil change dominates the investment chain. If a Fed move is to be effective,  the move must be computed from price samples going back to the longer lag period.

Channel Theory:
The oil chain has actually reduced its supply lines and lightened inventories, acting as if it is a monopoly power.  To the rest of the economic flows, this is easily observable via rapid retail price changes in oil. The oil polynomial becomes a prime factor in all  other distributions. This gives the illusion that all other distributions measure over the long term.   It is simply that a few scarce inputs dominate long term constraints.