Modeling the Global Price of Oil 2003-2018: Unintended Consequences of U.S. Quantitative Easing

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See all articles by A. (Tassos) G. Malliaris

A. (Tassos) G. Malliaris

Loyola University of Chicago - Department of Economics

Mary Malliaris

Loyola University Chicago

Date Written: November 18, 2019

Abstract


During the Global Financial Crisis of 2007-2009, the price of crude oil dropped markedly from about $140 per barrel in June 2008 to about $40 in early 2009. As Quantitative Easing allowed the U.S. economy to stabilize and return to slow growth, oil prices increased and averaged about $100 during 2010-13. Then in June 2014, they plunged dramatically to about $40. This paper makes an original contribution that explains the volatile behavior of global crude prices during the 2003-2018 period that includes the Global Financial Crisis. We propose a financial model that focuses on U.S. Quantitative Easing as the signature monetary policy tool to provide liquidity and restore economic growth. This model describes the price of oil as depending on six inputs: Federal Assets accumulated during the period of Quantitative Easing, the 10 Year Treasury Note, the price of copper, the Trade Weighted dollar, the S&P 500 Index and the U.S. High Yield Rate for Bonds rated CCC or below. Making use of 771 overlapping 52-week regressions to capture short run dynamics we find that Quantitative Easing was statistically significant only during 2009-10, while the U.S. High Yield Rate played a significant role explaining oil price changes, both during the crisis and also during the 2014-2017 period. The significance of the U.S. High Yield Rate is expected to continue in the future.

Keywords: Quantitative Easing, Price of Oil, High Yield Bond Spread, 10 Year Treasury Notes, Fracking Technology.

JEL Classification: C10; C45; C58; E52; E58.

Suggested Citation

Malliaris, A. (Tassos) G. and Malliaris, Mary, Modeling the Global Price of Oil 2003-2018: Unintended Consequences of U.S. Quantitative Easing (November 18, 2019). Available at SSRN: https://ssrn.com/abstract=

A. (Tassos) G. Malliaris (Contact Author)

Loyola University of Chicago - Department of Economics ( email )

16 E. Pearson Ave
Quinlan School of Business
Chicago, IL 60611
United States
312-915-6063 (Phone)

Mary Malliaris

Loyola University Chicago ( email )

16 East Pearson Street
Chicago, IL 60611
United States
312-915-7064 (Phone)

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