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The US Banks’ Balance Sheet Transmission Channel of Oil Price Shocks

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  • Paolo Gelain
  • Marco Lorusso

Abstract

We document the existence of a quantitative relevant banks' balance-sheet transmission channel of oil price shocks by estimating a dynamic stochastic general equilibrium model with banking and oil sectors. The associated amplification mechanism implies that those shocks explain a non-negligible share of US GDP growth fluctuations, up to 17 percent, instead of 6 percent absent the banking sector. Also, they mitigated the severity of the Great Recession’s trough. GDP growth would have been 2.48 percentage points more negative in 2008Q4 without the beneficial effect of low oil prices. The estimate without the banking sector is only 1.30 percentage points.

Suggested Citation

  • Paolo Gelain & Marco Lorusso, 2022. "The US Banks’ Balance Sheet Transmission Channel of Oil Price Shocks," Working Papers 22-33, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:95098
    DOI: 10.26509/frbc-wp-202233
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    More about this item

    Keywords

    oil price shocks; DSGE models; financial frictions;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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