The global price of oil, QE and the US high yield rate

Abstract

PurposeQuantitative easing (QE) allowed the US economy to stabilize and return to slow growth. Oil prices increased to $100 during 2010–2013. Then in June 2014, they plunged again dramatically to $40. The purpose of this paper is to develop and test a model that describes the price of oil as depending on six inputs: Federal assets accumulated by the Federal Reserve during the period of QE, the 10-Year Treasury note rate, the price of copper, the trade-weighted dollar, the S&P 500 Index and the US high yield rate for bonds rated CCC or below.Design/methodology/approachWe use 771 overlapping 52-week regressions to capture short-run oil price dynamics.FindingsWe find that QE was statistically significant only during 2009–2010, while the US high yield rate played a more significant role, both during and after the crisis.Research limitations/implicationsThis paper does not explain the behavior of oil prices prior to 2003.Practical implicationsThis paper emphasizes the role of the high yield rate on fracking technology in financing the extraction and production of oil.Originality/valueThe paper has both the theoretical value for researchers in the area of energy, as well as practical application for the oil industry.

Outside the Box: Unconventional Monetary Policy in the Great Recession and Beyond

“…." 4 On March 18, 2009, the Federal Open Market Committee announced that it would expand its purchases of agency debt and mortgage-backed securities, and would also purchase $300 billion of longerterm Treasury securities "to help improve conditions in private credit markets" more generally. 5 QE2 was announced on November 3, 2010.…”

“…Excluded from the list of quantitative easing episodes that follow are the assets acquired by the Federal Reserve in its capacity as lender of last resort, such as the asset-backed commercial paper purchased as part of the Commercial Paper Funding Facility, which was operated from October 2008 to February 2010 in an effort to avert a liquidity crisis 3. To put this into perspective, in the five years prior to the crisis, the Fed would purchase $2.75 billion of Treasury securities in a typical month 4. Press Release, November 25, 2008, at https://www.federalreserve.gov/newsevents/pressreleases/ monetary20081125b.htm 5.…”

What Microeconomic Fundamentals Drove Global Oil Prices during 1986–2020?

“…We consider five dissimilar regimes during the period of January 1986 to the end of 2017: two regimes prior to the global financial crisis, the regime during the crisis, and two regimes after the crisis. Malliaris and Malliaris (2020) studied the behavior of the global price of oil using macroeconomic variables and employing the methodology of overlapping regressions. Bhar et al (2021) focused on U.S. oil production.…”