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The Response of U.S. Investment to Oil Price Shocks: Does the Shale Boom Matter?

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Abstract

After an unprecedented decline from 2014 to 2016, the real price of oil more than doubled, renewing interest in the effects of oil price fluctuations on the U.S. economy. The oil sector has become increasingly important to the U.S. economy over the past decade, and total U.S. business fixed investment appears to have followed oil investment?s pattern in recent years. This positive correlation between oil prices and U.S. investment growth may be related to the surge in U.S. oil production known as the shale boom. {{p}} Nida ak?r Melek explores the effect of unexpected oil price changes (or ?shocks?) on U.S. investment and examines whether this effect changed after the shale boom. She finds that U.S. investment has become more responsive to demand shocks and less responsive to oil supply shocks since the shale boom. In addition, she finds that oil investment has become more responsive to oil supply and demand shocks since the boom. Her results suggest that the shale boom led to greater spillovers from the oil sector to the aggregate economy.

Suggested Citation

  • Nida Çakır Melek, 2018. "The Response of U.S. Investment to Oil Price Shocks: Does the Shale Boom Matter?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 39-61.
    • Handle: RePEc:fip:fedker:00072
    DOI: 10.18651/ER/4q18CakirMelek
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    Cited by:

    1. Willem Thorbecke, 2020. "The Impact of the COVID-19 Pandemic on the U.S. Economy: Evidence from the Stock Market," JRFM, MDPI, vol. 13(10), pages 1-30, October.
    2. Wheeler,Collette Mari & Baffes,John & Kabundi,Alain Ntumba & Kindberg-Hanlon,Gene & Nagle,Peter Stephen Oliver & Ohnsorge,Franziska Lieselotte, 2020. "Adding Fuel to the Fire : Cheap Oil during the COVID-19 Pandemic," Policy Research Working Paper Series 9320, The World Bank.

    More about this item

    Keywords

    Economy; Investments; Oil prices; Energy;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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