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

Anastasios Malliaris and Mary Malliaris

Journal of Economic Studies, 2020, vol. 47, issue 7, 1849-1860

Abstract: Purpose - Quantitative 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/approach - We use 771 overlapping 52-week regressions to capture short-run oil price dynamics. Findings - We 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/implications - This paper does not explain the behavior of oil prices prior to 2003. Practical implications - This paper emphasizes the role of the high yield rate on fracking technology in financing the extraction and production of oil. Originality/value - The paper has both the theoretical value for researchers in the area of energy, as well as practical application for the oil industry.

Keywords: Quantitative easing; High yield bond rate; Price of oil (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-01-2020-0025

DOI: 10.1108/JES-01-2020-0025

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