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Journal Article
Negative Sentiment toward Spending and Declining Real Incomes May Meaningfully Lower Consumption
Despite a contraction in real GDP in the first half of 2022, consumer spending has remained resilient. We examine a set of factors that have historically affected consumption growth and find that excess savings have boosted consumer spending during the COVID-19 pandemic. However, as excess savings decline and economic relationships normalize, negative sentiment toward spending and declining real incomes may meaningfully lower consumption.
Journal Article
Gasoline Prices Unlikely to Bring Down Inflation in 2023
Gasoline prices can influence inflation both directly (by changing prices at the pump) and indirectly (by shaping consumers’ inflation expectations). Through these channels, gasoline prices have played an important role in the run-up and recent decline in inflation. Although gasoline prices have declined from their all-time highs, they are expected to remain relatively stable in 2023. As a result, gasoline prices are unlikely to deliver further reductions in either inflation or inflation expectations this year.
Journal Article
Evaluating a Year of Oil Price Volatility
Troy Davig, Nida ak?r Melek, Jun Nie, Lee Smith, and Didem Tzemen find changes in expectations of future oil supply relative to demand are the main drivers of the recent oil price decline.
Working Paper
The U.S. Shale Oil Boom, the Oil Export Ban, and the Economy: A General Equilibrium Analysis
This paper examines the effects of the U.S. shale oil boom in a two-country DSGE model where countries produce crude oil, refined oil products, and a non-oil good. The model incorporates different types of crude oil that are imperfect substitutes for each other as inputs into the refining sector. The model is calibrated to match oil market and macroeconomic data for the U.S. and the rest of the world (ROW). We investigate the implications of a significant increase in U.S. light crude oil production similar to the shale oil boom. Consistent with the data, our model predicts that light oil ...
Journal Article
Can Higher Gasoline Prices Set Off an Inflationary Spiral?
In early 2022, with consumer price inflation already high, a spike in the price of gasoline increased public concerns that the U.S. economy could be in for a repeat of the inflationary spiral that gripped the nation in the 1970s and 1980s. During this period, energy price increases created an environment where rising inflation and rising inflation expectations reinforced one another until a deep economic contraction broke the feedback loop.Nida Çakır Melek, Francis M. Dillon, and A. Lee Smith assess the risk of a similar spiral in the current environment by exploring whether high inflation ...
Journal Article
Lifting the U.S. Crude Oil Export Ban: Prospects for Increasing Oil Market Efficiency
Repealing the U.S. ban on crude oil exports led to increased trade and efficiency in the oil market.
Journal Article
What could lower prices mean for U.S. oil production?
Melek estimates the effects of the recent oil price decline on 2015 oil production.
Working Paper
The Income Share of Energy and Substitution: A Macroeconomic Approach
As the atmospheric concentration of CO2 emissions has grown to record levels, callshave grown for governments to make steeper emissions cuts, requiring to reduce an economy’s use of fossil energy dramatically. Meanwhile, in the U.S., fossil energy still met 80percent of the total energy demand as of 2019. This paper examines U.S. energy dependence, measured by its factor share, using a simple neoclassical framework in a systematicway. We find that with empirically plausible differences in substitution elasticities, particularly with a time-varying substitution elasticity between equipment ...
Journal Article
What could lower prices mean for U.S. oil production?
U.S. oil and natural gas production has grown significantly since 2005, reflecting a move toward shale gas and tight oil extraction. Since 2011, the most productive tight oil and shale gas fields accounted for nearly all of the growth in U.S. energy production, due largely to extensive use of hydraulic fracturing and horizontal drilling. High energy prices made these costly technologies profitable to apply on a large scale. However, oil prices and rig counts declined sharply in 2014, calling into question whether the boom in U.S. oil production can continue. Nida ak?r Melek examines how ...