Oil Price Fluctuations, US Banks, and Macroprudential Policy

Paolo Gelain and Marco Lorusso

No 22-33R, Working Papers from Federal Reserve Bank of Cleveland

Abstract: Using US micro-level data on banks, we document a negative effect of high oil prices on US banks' balance sheets, more negative for highly leveraged banks. We set and estimate a general equilibrium model with banking and oil sectors that rationalizes those findings through the financial accelerator mechanism. This mechanism amplifies the effect of oil price shocks, making them non-negligible drivers of the dynamics of US banks' intermediation activity and of the US real economy. Macroprudential policy, in the form of a countercyclical capital buffer, can meaningfully address oil price fluctuations and reduce the volatility they cause in the US economy.

Keywords: oil price shocks; DSGE models; financial frictions; macroprudential policy (search for similar items in EconPapers)
JEL-codes: E32 E44 Q35 Q43 (search for similar items in EconPapers)
Pages: 85
Date: 2022-11-15, Revised 2024-10-23
New Economics Papers: this item is included in nep-ban, nep-dge, nep-ene and nep-fdg
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DOI: 10.26509/frbc-wp-202233r

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