Maury Obstfeld et al., writing on the IMF’s blog site, don’t do a very aggressive job of advertising their main observation, so let me do it here.
The problem is that you’d think that the decline in global oil prices since 2014 would be a net plus for the world economy, in the same way that the price spikes of the 70s were a (big) net minus. That’s not what we’re seeing, however. Overall, it’s a wash or possibly a slight negative, even if we don’t read too much into the link between oil and stock prices. You might argue reverse causation, that it’s the slack in the economy that’s pulling down oil and other commodity prices, and there’s some truth in this, but, as Obstfeld and his coauthors point out, econometric studies have put most of the explanation for the price drop on increases in supply rather than reductions in demand. So what gives?
Their point is simple but important. Monetary policy throughout most of the developed world has been stuck at the zero lower bound, despite recent forays into negative rates for some instruments. Under this circumstance, declines in the price level translate into perverse increases in real interest rates, and our IMF sources provide evidence that oil prices are moving in step with inflation expectations:
The bottom line (which they fudge around a bit) is that monetary policy really, really needs help. Fiscal expansion is essential.