Description

This paper investigates the global macroeconomic consequences of falling oil prices due to the oil
 revolution in the United States, using a Global VAR model estimated for 38 countries/regions
 over the period 1979Q2 to 2011Q2. Set-identification of the U.S. oil supply shock is achieved
 through imposing dynamic sign restrictions on the impulse responses of the model. The results
 show that there are considerable heterogeneities in the responses of different countries to a U.S.
 supply-driven oil price shock, with real GDP increasing in both advanced and emerging market
 oil-importing economies, output declining in commodity exporters, inflation falling in most
 countries, and equity prices rising worldwide. Overall, our results suggest that following the U.S.
 oil revolution, with oil prices falling by 51 percent in the first year, global growth increases by
 0.16 to 0.37 percentage points. This is mainly due to an increase in spending by oil importing
 countries, which exceeds the decline in expenditure by oil exporters.

More publications in this series: Working Papers

More publications by: Kamiar Mohaddes ; Mehdi Raissi