Job Market Paper
I study empirically and theoretically the global economic consequences of U.S. energy market shocks. Using a set of factor-augmented vector autoregression models with sign and elasticity restrictions, I identify and compare the impact of unanticipated changes in U.S. energy efficiency and U.S. oil supply. Positive shocks in both cases lead to a sizeable and persistent increase in global output, while generating opposite implications for total world oil production and consumption. On average, U.S. energy efficiency shocks have a larger impact on global output and real price of oil than U.S. oil supply shocks. For the period 2010-2019, positive U.S. oil supply shocks, led by productivity gains in the U.S. shale sector, resulted in an increase of 0.27 percentage points in global GDP growth. During the same period a series of negative energy efficiency shocks decreased global GDP growth by 0.19 percentage points. The latter results are most prominent during the second shale boom, 2017-2019, when negative energy efficiency shocks cancelled out the positive impact on global growth of U.S. oil supply expansion. Considerable heterogeneity exists in cross-country responses, with GDP implications favorable for advanced and emerging market oil importers and adverse for oil exporters. The empirical results are qualitatively compatible with a general equilibrium multi-country model with a global oil market, where key parameters are estimated using indirect inference. I show that increasing transferability of U.S. energy efficiency improvements to other countries can be used as a policy instrument in mitigating the negative global economic implications of a cutback in U.S. oil production.