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OEF Rapid Review Articles

The Brookings report “Lower Oil Prices and the U.S. Economy: Is This Time Different?”, September 2016, by Christiane Baumeister and Lutz Kilian at the University of Notre Dame and the University of Michigan respectively, explores the effect on U.S. real GDP growth of the sharp decline in the global price of crude oil and hence in the U.S. price of gasoline after June 2014. The analysis suggests that this decline produced a stimulus of about 0.7 percentage points of real GDP growth by raising private real consumption and an additional stimulus of 0.04 percentage points reflecting a shrinking petroleum trade deficit. This stimulating effect has been largely offset by a reduction in real investment by the oil sector more than twice as large as that following the 1986 oil price decline. Hence, the net stimulus since June 2014 has been effectively zero. The authors found no evidence of an additional role for frictions in reallocating labor across sectors or for increased uncertainty about the price of gasoline in explaining the sluggish response of U.S. real GDP growth. Nor did they find evidence of lower oil costs stimulating other business investment, of financial contagion or of spillovers from oil-related investment to non-oil related investment, of an increase in household savings, or of households deleveraging.
SOURCE: The Brookings Institution
The Brookings Institution
LINK TO THE SOURCE ARTICLE:
Lower Oil Prices: Zero Stimulus to US Economy

 

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LINK TO THE SOURCE ARTICLE:
Lower Oil Prices: Zero Stimulus to US Economy

 

 

 

 

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