Cambridge Business Association
The Elusive Boost from Cheap Oil
Article

The Elusive Boost from Cheap Oil

Sylvain Leduc, Kevin Moran and Robert J. Vigfusson
FRBSF, 2016
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Editorial Rating

8

Qualities

  • Innovative
  • Eye Opening

Recommendation

Economists predicted that the plunge in oil prices – from more than $100 a barrel in 2014 to the $40 range in 2016 – would be a windfall for American consumers and would provide a needed boost to discretionary spending. Lower prices at the pump should have translated into an increase in overall consumption. However, greater consumer spending has yet to unfold. In this insightful article, economists Sylvain Leduc, Kevin Moran and Robert J. Vigfusson offer an explanation for this result: consumers’ perceptions of how long oil prices will stay low. getAbstract recommends this informative report to policy makers, investors, business executives and consumers.

Summary

For consumers in the United States, lower gasoline prices should add to their discretionary income, even though those prices don’t fully reflect the steep drop in the cost of crude oil from 2014. But since then, people have not taken their savings and redirected them to increased purchases, as experts forecast they would. A weak global economy and a strong US dollar may be behind this phenomenon. However, a stronger explanation lies in how consumers perceive the duration of oil price levels.

Neither consumer nor investor perceptions...

About the Authors

Sylvain Leduc is a vice president at the Federal Reserve Bank of San Francisco. Kevin Moran is an economics professor at Université Laval. Robert J. Vigfusson leads trade and quantitative studies at the Board of Governors of the Federal Reserve System.

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