tag:blogger.com,1999:blog-4900303239154048192.post4584078806277839294..comments2024-03-06T06:34:42.881-05:00Comments on EconoSpeak: Why Declining Oil Prices Can Be ContractionaryUnknownnoreply@blogger.comBlogger3125tag:blogger.com,1999:blog-4900303239154048192.post-36745971896216572112016-03-28T12:52:38.351-04:002016-03-28T12:52:38.351-04:00You missed another key point for a contractionary ...You missed another key point for a contractionary effect of the oil price crash: declining investment spending. The oil and gas sector has been virtually the only sector with robust investment since the 2009 recession, fueled by cheap money from the Fed. (Fracked gas has been below its production cost since 2012.) Now the hedges have worn off, the debts are coming due and the junk spreads are blowing out, with the coming wave of bankruptcies and retrenchments.john c. halaszhttps://www.blogger.com/profile/17176419625607679150noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-41683849455465602262016-03-25T12:58:28.187-04:002016-03-25T12:58:28.187-04:00"Even though oil is a less important producti..."Even though oil is a less important production input than it was three decades ago, that reasoning should work in reverse when oil prices fall, leading to lower production costs, more hiring, and reduced inflation. But this channel causes a problem when central banks cannot lower interest rates. Because the policy interest rate cannot fall further, the decline in inflation (actual and expected) owing to lower production costs raises the real rate of interest, compressing demand and very possibly stifling any increase in output and employment. Indeed, those aggregates may both actually fall. Something like this may be going on at the present time in some economies. Chart 3 is suggestive of a depressing effect of low expected oil prices on expected inflation: it shows the strong recent direct relationship between U.S. oil futures prices and a market-based measure of long-term inflation expectations."<br /><br />The Fed is failing to keep inflation expectations up with an assist from Congress.<br />Peterhttps://www.blogger.com/profile/08272747870634233567noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-8599653032739238902016-03-25T12:54:48.389-04:002016-03-25T12:54:48.389-04:00I'm all for fiscal action. I think it works be...I'm all for fiscal action. I think it works better than monetary policy.<br /><br />Still many economists are being dishonest when they say monetary policy is spent. As Kocherlakota (today) Dean Baker and many other economists are arguing, the central bank could do more if it had the will.<br /><br />It's bizarre to argue that monetary policy isn't working when they're tightening.Peterhttps://www.blogger.com/profile/08272747870634233567noreply@blogger.com