Lower Oil Prices and the Economy… Brookings Institute

In a paper presented to the Brookings Institute, Christiane Baumeister of the University of Notre Dame and Lutz Kilian of the University of Michigan show that lower oil prices stimulated consumer spending but was offset by a decline in oil-related investment.

Their findings are summarized here: https://www.brookings.edu/bpea-articles/lower-oil-prices-and-the-u-s-economy-is-this-time-different/

“The authors make a point of comparing the most recent oil price drop with events in late 1985, when a shift in Saudi policies caused a large and sustained decline in the global price of oil in 1986, resulting in an increase in private consumption and a decline in oil-related nonresidential investment – much like today. The main difference between then and now is that the decline in oil-related investment after June 2014 was about twice as large. The magnitude of this decline is not surprising upon reflection, Baumeister and Kilian argue, because the cumulative decline in the price of oil after June 2014 was twice as large as that after December 1985, while the share of oil and gas extraction in GDP was about the same in 2014 as in 1985.”