Do oil prices help forecast real GDP?

Worldwide shale oil production could add $2.7-trillion to the global economy annually by 2035 by slashing the price of crude by as much as $50 a barrel, PwC said on Thursday. Shale oil production could surge to 14 million barrels per day, or as much as 12 percent of total oil output from around 1 percent now, as it expands from its U.S. base over the next two decades, the world’s largest accounting firm said in a report.

Earlier this year, disruptions in Libya and the resurgence of demand from the emerging economies sent oil prices up sharply, a development that many economists believe contributed to the slow growth for 2011:H1. The chaotic markets of the last few weeks saw oil prices drop back down to where they had been in December. Will that be enough to revive the struggling U.S. economy? There is some evidence suggesting that it may be too late.

Today, we are fortunate to have Luciana Juvenal and Ivan Petrella, as guest contributors. In this post, they respond to Wednesday's guest contribution by Lutz Kilian, entitled Oil Price Spike Exacerbated by Wall Street Speculation?. Disentangling the main drivers of oil prices is a critical first step for allocating resources and designing good policy.

Lutz Kilian, 23 June 2011Reduced Libyan output, broader political unrest in the Middle East, and a slow global recovery have raised the uncertainty surrounding oil prices. This column discusses the challenges and value of forecasting future oil prices in real time, as opposed to fitting models to revised oil prices released months after economic decisions are made. Full Article: Forecasting oil prices in real time

Germany, France, Italy, and Spain have agreed to spend 1% of GDP on new stimulus measures. Where is the money coming from? They will not say. Most likely from somewhere else, better known as nowhere. The Guardian reports Eurozone big four pledge 1% of GDP to underwrite banks and stimulate growth.

Lutz Kilian, 21 April 2012Was the surge in the oil prices between 2003 and 2008 caused by financial investors taking speculative positions in oil futures markets? Many pundits and policymakers seem to think so, but this column says this view goes against the extensive body of evidence. Full Article: Speculation in oil markets? What have we learned?

Michael Levi (hat tip:Marginal Revolution) and Jeremy Kahn are among those who recently rediscovered some earlier research by Ben Bernanke and others that concluded that the economic downturns that followed historical oil price shocks could have been avoided if the Fed had followed a more expansionary monetary