Working Paper

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

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.

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

JEL Classification: E32; E44; Q35; Q43;

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2022-11-15

Number: 22-33