Publications: Notes at the Margin

Economic Impact of Lower Prices (February 22, 2016)

 

An economic debate rages regarding the impact of lower oil prices. Some claim the large fall will depress global economic activity. Others suggest it will benefit the world economy but only gradually. In our view, the impact of lower prices was more subdued in 2015 with respect to stimulating consumer demand than it would have been twenty or thirty years ago, while the deleterious effect on oil-sector activity was greater than in previous episodes. Indeed, the diminished effect on consumer demand suggests that lower oil prices have led to slower economic growth here and abroad. When combined, these two effects have moderated and will moderate the global economic impact in the short run. However, in the long run lower oil prices may benefit the world economy.

 

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