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Oil prices and the US economy: Where is the boom?

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  • Arora, Vipin

Abstract

The author argues that the economic benefits of low gasoline prices for the U.S. economy have fallen substantially since the reemergence of America as a major oil producer. The old rule-ofthumb that a 10% fall in the oil price raises inflation-adjusted U.S. GDP by 0.2% is too large - the impact on economic activity should be closer to zero, and may even be negative if consumption grows slowly. The reasons for this change are straightforward, if underappreciated: (i) the value of oil production accounts for a larger share of the U.S. economy; and (ii) consumers are not spending the windfall like they used to because of higher debt levels, limited access to credit, slow wage growth, and an older population.

Suggested Citation

  • Arora, Vipin, 2015. "Oil prices and the US economy: Where is the boom?," Economics Discussion Papers 2015-48, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:201548
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    References listed on IDEAS

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    Cited by:

    1. Vipin ARORA, 2016. "Consumer Credit, Oil Prices, and the U.S. Economy," Turkish Economic Review, KSP Journals, vol. 3(1), pages 122-142, March.
    2. Grace Taylor & Rod Tyers, 2017. "Secular Stagnation: Determinants and Consequences for Australia," The Economic Record, The Economic Society of Australia, vol. 93(303), pages 615-650, December.

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    More about this item

    Keywords

    oil price; economic activity; input-output; consumption;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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