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

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.

Citation

Malliaris, A. and Malliaris, M.E. (2020), "The global price of oil, QE and the US high yield rate", Journal of Economic Studies, Vol. 47 No. 7, pp. 1849-1860. https://doi.org/10.1108/JES-01-2020-0025