Global Footprints of U.S. Energy Innovations: Energy Efficiency and the Shale Revolution

This paper studies the effects of U.S. energy shocks on international economic activity andthe world oil market. The analysis uses a set of factor-augmented vector autoregressions to identify andcompare the impact of unanticipated changes in U.S. energy efficiency and U.S. oil supply over 1980Q1–2019Q4. Theidentification strategy relies on the fact that positive shocks in both cases decrease the real price of oil andincrease global gross domestic product (GDP), while generating opposite implications for world oil productionand consumption. On average, U.S. energy efficiency shocks have a larger impact on the real price of oil and global GDPthan U.S. oil supply shocks. Historical decompositions suggest that in 2010–19, U.S. oil supply shocks increasedGDP by 2 percent, while (negative) energy efficiency shocks decreased global GDP by 1.3 percent. The latter effectdominated during the second shale boom in 2017–19. Considerable heterogeneity exists in cross-countryresponses, with favorable implications for GDP in advanced and emerging market oil importers and adverse implicationsfor oil exporters. The empirical findings are interpreted through the lens of a dynamic general equilibriummulti-country model that features a global oil market and where key parameters are estimated using indirect inference.