The slowdown in global oil demand, together with some disagreement between OPEC countries, has led to a significant decline in the oil price since the start of 2014. Assuming that this decline goes further (the limit being the marginal cost of oil production), what would be the consequences for OECD countries?
– Stimulation of growth due to the fall in the cost of energy imports;
– Inflation that is even lower, and in some cases (euro zone) negative.
We want to know:
– Whether this has already occurred in history;
– Whether this equilibrium (stronger growth, very low inflation) would
pose a problem;
– What central banks would do, and what would be the trend for real interest rates.
Since a fall in the oil price is a positive supply shock, there is normally no reason to worry about the resulting fall in inflation unless, as inflation is already very low, there is an abnormal rise in real interest rates
