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Working Paper
How Times Have Changed: The Impact of the 2026 Iran War on the U.S. Economy
Kilian, Lutz; Plante, Michael D.; Richter, Alexander W. (2026-06-23)
The 2026 Iran war has raised the question of how exposed the U.S. economy is to geopolitical oil supply disruptions. It is widely believed that the U.S. economy has become less vulnerable to such disruptions as it has reduced its dependence on oil and changed from a major net oil importer to a net oil exporter. We develop a two-country model of the global economy with large geopolitical oil supply disruptions that distinguishes between the U.S. economy and the rest of the world. We find that the response of U.S. real GDP growth to the disruption in global oil supplies today is only ...
Working Papers , Paper 2615

Working Paper
The Impact of Rising Oil Prices on U.S. Inflation and Inflation Expectations in 2020-23
Kilian, Lutz; Zhou, Xiaoqing (2021-11-19)
Predictions of oil prices reaching $100 per barrel during the winter of 2021/22 have raised fears of persistently high inflation and rising inflation expectations for years to come. We show that these concerns have been overstated. A $100 oil scenario of the type discussed by many observers, would only briefly raise monthly headline inflation, before fading rather quickly. However, the short-run effects on headline inflation would be sizable. For example, on a year-over-year basis, headline PCE inflation would increase by 1.8 percentage points at the end of 2021 under this scenario, but only ...
Working Papers , Paper 2116

Working Paper
The Uniform Validity of Impulse Response Inference in Autoregressions
Kilian, Lutz; Inoue, Atsushi (2019-08-11)
Existing proofs of the asymptotic validity of conventional methods of impulse response inference based on higher-order autoregressions are pointwise only. In this paper, we establish the uniform asymptotic validity of conventional asymptotic and bootstrap inference about individual impulse responses and vectors of impulse responses when the horizon is fixed with respect to the sample size. For inference about vectors of impulse responses based on Wald test statistics to be uniformly valid, lag-augmented autoregressions are required, whereas inference about individual impulse responses is ...
Working Papers , Paper 1908

How Falling Oil Prices in Early 2020 Weakened the U.S. Economy
Zhou, Xiaoqing; Plante, Michael D.; Kilian, Lutz (2020-05-19)
The benchmark West Texas Intermediate (WTI) price of oil dropped by more than half from Jan. 21 to April 3. This oil price decline has weakened rather than strengthened the U.S. economy, making this event different from past episodes of falling oil prices.
Dallas Fed Economics

Working Paper
The Role of Oil Price Shocks in Causing U.S. Recessions
Kilian, Lutz; Vigfusson, Robert J. (2014-08-20)
Although oil price shocks have long been viewed as one of the leading candidates for explaining U.S. recessions, surprisingly little is known about the extent to which oil price shocks explain recessions. We provide a formal analysis of this question with special attention to the possible role of net oil price increases in amplifying the transmission of oil price shocks. We quantify the conditional recessionary effect of oil price shocks in the net oil price increase model for all episodes of net oil price increases since the mid-1970s. Compared to the linear model, the cumulative effect of ...
International Finance Discussion Papers , Paper 1114

Working Paper
Geopolitical Oil Price Risk and Economic Fluctuations
Kilian, Lutz; Plante, Michael D.; Richter, Alexander W. (2026-03-02)
Market participants and policymakers are concerned about major oil production shortfalls driven by geopolitical events. Even when such events never materialize, unanticipated increases in the probability of a production shortfall may generate a surge in the price of oil and oil price uncertainty. We provide the first systematic account of the quantitative importance of time-varying geopolitical risk to oil production for the global economy. We show that a 20 percentage point increase in the probability of a 5% shortfall in oil production causes a 0.12% reduction in output. When considering a ...
Working Papers , Paper 2403

Working Paper
When Do State-Dependent Local Projections Work?
Kilian, Lutz; Pesavento, Elena; Herrera, Ana María; Goncalves, Silvia (2022-05-06)
Many empirical studies estimate impulse response functions that depend on the state of the economy. Most of these studies rely on a variant of the local projection (LP) approach to estimate the state-dependent impulse response functions. Despite its widespread application, the asymptotic validity of the LP approach to estimating state-dependent impulse responses has not been established to date. We formally derive this result for a structural state-dependent vector autoregressive process. The model only requires the structural shock of interest to be identified. A sufficient condition for the ...
Working Papers , Paper 2205

Working Paper
What the Iran War Teaches Us about the Price Elasticity of Oil Supply
Kilian, Lutz; Patel, Kunal (2026-08-06)
We draw on evidence from the 2026 Iran War to assess the validity of estimates of the short-run price elasticity of oil supply reported in the literature. Our analysis confirms that the one-month and one-quarter U.S. oil supply elasticity is effectively zero, consistent with estimates in Newell and Prest (2019). The data strongly reject the much higher elasticity estimates reported by more recent studies. This finding is consistent with evidence from surveys of oil company executives and with industry data about how long it takes to complete a well and start pumping oil. It is also consistent ...
Working Papers , Paper 2625

Working Paper
Semiparametric Local Projections
Kelanemer Holban, Iones; Kilian, Lutz; Gonçalves, Sílvia; Pesavento, Elena; Herrera, Ana María (2026-06-30)
We propose a semiparametric local projection estimator of nonlinear impulse response functions for a broad class of structural dynamic models relevant for applied macroeconomics, including models with nonlinearly transformed regressors, state dependent coefficients and nonlinear interactions between shocks and state variables. The estimator is based on a doubly robust moment condition that identifies the average response function as a linear functional of a nonparametric conditional mean, augmented by a density ratio that captures the effect of shifting the shock of interest. We combine this ...
Working Papers , Paper 2616

Capacity Constraints Drive the OPEC+ Supply Gap
Kilian, Lutz; Plante, Michael D.; Patel, Kunal (2022-04-19)
Assuming that the group increases production at the same pace it has in recent months, only a handful of countries in OPEC+ will have spare capacity left by the start of the summer, a number that will dwindle as year-end approaches.
Dallas Fed Economics

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