Global Footprints of U.S. Energy Innovations: Energy Efficiency and the Shale Revolution

This paper studies the effects of U.S. energy shocks on international economic activity and the world oil market. The analysis uses a set of factor-augmented vector autoregressions to identify and compare the impact of unanticipated changes in U.S. energy efficiency and U.S. oil supply over 1980Q1–2019Q4. The identification strategy relies on the fact that positive shocks in both cases decrease the real price of oil and increase global gross domestic product (GDP), while generating opposite implications for world oil production and consumption. On average, U.S. energy efficiency shocks have a larger impact on the real price of oil and global GDP than U.S. oil supply shocks. Historical decompositions suggest that in 2010–19, U.S. oil supply shocks increased GDP by 2 percent, while (negative) energy efficiency shocks decreased global GDP by 1.3 percent. The latter effect dominated during the second shale boom in 2017–19. Considerable heterogeneity exists in cross-country responses, with favorable implications for GDP in advanced and emerging market oil importers and adverse implications for oil exporters. The empirical findings are interpreted through the lens of a dynamic general equilibrium multi-country model that features a global oil market and where key parameters are estimated using indirect inference.