Oil Price Fluctuations, US Banks, and Macroprudential Policy

RePEc Short ID: pge110
ORCID iD: 0000-0002-7922-9494

Gelain, Paolo; Lorusso, Marco

doi:10.26509/frbc-wp-202233r

Working Paper Revision

Oil Price Fluctuations, US Banks, and Macroprudential Policy

Abstract: Using US micro-level data on banks, we document a negative effect of high oil prices on US banks' balance sheets, more negative for highly leveraged banks. We set and estimate a general equilibrium model with banking and oil sectors that rationalizes those findings through the financial accelerator mechanism. This mechanism amplifies the effect of oil price shocks, making them non-negligible drivers of the dynamics of US banks' intermediation activity and of the US real economy. Macroprudential policy, in the form of a countercyclical capital buffer, can meaningfully address oil price fluctuations and reduce the volatility they cause in the US economy.

Keywords: oil price shocks; DSGE models; financial frictions; macroprudential policy;

JEL Classification: E32; E44; Q35; Q43;

https://doi.org/10.26509/frbc-wp-202233r