Thursday, March 24, 2016

More On Current Oil Prices, Equities and Economic Activity

I quit supporting the Oxford comma.
Following up on the piece from the IMF blog, "Oil Prices and the Global Economy: It’s Complicated".

From Real Time Economics, Greg Ip weighs in:
One of the economy’s big puzzles is why lower oil prices have done so little to help economic growth. The correlation between oil and stocks is now strongly positive. The opposite should be true since cheaper oil is a tax cut for oil-importing countries like the U.S. 
Three economists at the International Monetary Fund have advanced an intriguing theory: lower oil prices drive down actual and expected inflation, which would ordinarily also pull down interest rates. But in most big economies, interest rates are already at or near zero, and can’t go any lower. Thus, as expected inflation falls but nominal interest rates don’t, real interest rates (nominal rates minus inflation) rise, “very possibly stifling any increase in output and employment.”...MORE