Search Results
Discussion Paper
The Disconnect between Productivity and Profits in U.S. Oil and Gas Extraction
U.S. oil and gas production boomed during the years leading up to the pandemic. From 2011 to 2019, oil production more than doubled and dry natural gas production rose by more than half. Remarkably, these gains occurred despite lackluster investment spending and hiring. Instead, higher production came largely from productivity gains, via wider adoption of fracking technologies. More recently, production recovered sluggishly from the pandemic downturn despite a quick recovery in prices. Our analysis in this post suggests that slower productivity growth and investors’ demand for higher ...
Hormuz closure offsets tariff reversal; U.S. left with upside inflation risk
A pair of important and opposing trade shocks hit the U.S. economy during the first quarter of 2026. The U.S. Supreme Court struck down a portion of the tariffs imposed under the International Emergency Economic Powers Act (IEEPA). The decision on Feb. 20 lowered average U.S. import tariffs by roughly 4.8 percentage points.
Working Paper
Geopolitical Oil Price Risk and Economic Fluctuations
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 Paper
Financial market reactions to the Russian invasion of Ukraine
This article analyzes financial market reactions to the Russia-Ukraine war with a focus on the opening weeks. Markets did not completely anticipate the war and asset price reactions strengthened from the first week—when there were hopes for a quick resolution—to the second week, when prices generally peaked and began to partially revert to pre-war values. Exposure to commodity trade and trade with Russia-Ukraine determined market perceptions of the riskiness of equity and foreign exchange assets. Credit default swap prices on sovereign debt and breakeven inflation rates indicate that ...
Journal Article
Oil Shocks when Interest Rates Are at the Zero Lower Bound
New evidence suggests that rising oil prices associated with declining oil supply slow economic activities less when interest rates are constrained at the zero lower bound. Moreover, these oil price spikes can even increase overall output. Evidence points to the following explanation. An oil supply shock raises inflation in all periods, but the nominal interest rate does not react under the zero lower bound, so the shock reduces the real interest rate, stimulating demand in the economy.
What the closure of the Strait of Hormuz means for the global economy
The ongoing military conflict between Iran and the United States and Israel has raised concerns about a major disruption of global oil supplies driven by geopolitical events. This conflict has involved attacks on oil infrastructure in neighboring countries, including Saudi Arabia, Kuwait and the United Arab Emirates.
Working Paper
Generating Options-Implied Probability Densities to Understand Oil Market Events
We investigate the informational content of options-implied probability density functions (PDFs) for the future price of oil. Using a semiparametric variant of the methodology in Breeden and Litzenberger (1978), we investigate the fit and smoothness of distributions derived from alternative PDF estimation methods, and develop a set of robust summary statistics. Using PDFs estimated around episodes of high geopolitical tensions, oil supply disruptions, and macroeconomic data releases, we explore the extent to which oil price movements are expected or unexpected, and whether agents believe ...
Low oil prices, local impact: Do depressed energy markets affect banks?
Oil prices have swung dramatically in recent years, shaped by geopolitical conflicts, evolving global demand and shifting energy policies.
Working Paper
Geopolitical Oil Price Risk and Economic Fluctuations
This paper seeks to understand the general equilibrium effects of time-varying geopolitical risk in oil markets. Answering this question requires simultaneously modeling several features including macroeconomic disasters and geopolitically driven oil production disasters, oil storage and precautionary savings, and the endogenous determination of uncertainty about output and the price of oil. We find that oil price uncertainty tends to be driven by macroeconomic uncertainty. Shifts in the probability of a geopolitically driven major oil supply disruption have meaningful effects on the price of ...
Working Paper
Geopolitical Oil Price Risk and Economic Fluctuations
This paper studies the general equilibrium effects of time-varying geopolitical risk in the oil market by simultaneously modeling downside risk from disasters, oil storage and the endogenous determination of oil price and macroeconomic uncertainty in the global economy. Notwithstanding the attention geopolitical events in oil markets have attracted, we find that geopolitical oil price risk is not a major driver of global macroeconomic fluctuations. Even when allowing for the possibility of an unprecedented 20 percent drop in global oil production, it takes a large increase in the probability ...