ISETS V-Dialogue Series No. 1

On 21 June 2022, Dr. Lutz Kilian, Senior Economic Policy Adviser of the Federal Reserve Bank of Dallas, delivered a talk on “Oil prices as drivers of inflation” in the first ISETS V-Dialogue. The dialogue is hosted by Prof. Dayong Zhang, the vice president of the ISETS executive committee. Dr. Kilian is one of the most influential scholars in the field of oil price shocks. His research “Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market”, published in the American Economic Review, has attracted nearly 4000 citations on Google scholar.

Dr. Kilian started his presentation by arguing that household inflation expectations are more sensitive to fluctuations in the price of gasoline than professional inflation forecasts. He showed that, on average, gasoline price shocks account for about 42% of the variation in the one-year household inflation expectation. It is also shown that gasoline price shocks tend to capture domestic aggregate demand shocks.

Next, Dr. Kilian addressed the recent issues on the relationship between oil prices and high inflation in the world. Based on the trend of WTI daily prices, he showed that oil prices have steadily drifted upwards well before the Russia-Ukraine war, which is due to the robust post-pandemic demand and sluggish supply response. The upward trend of oil prices has a limited relationship with the war, whereas the price volatility is affected by the conflict.

Dr. Kilian ended his talk by emphasizing that the inflationary impact is not only related to oil, but also to natural gas, other commodities, and the global supply chain disruptions.

In Q&A part, participants had in-depth discussions with Dr. Kilian on the related issues, for example, how to explain the disparity between implied crude oil prices and actual WTI prices in the US; what would the long-term impact on oil investment be due to the development of clean energy?. Dr. Kilian shared his insightful views on these issues with the audience.

At the end of this dialogue, Prof. Dayong Zhang expressed his gratitude to Dr. Kilian and thanked all participants for their involvement in the first dialogue. He pointed out that the ISETS V-Dialogue series will continue to promote idea exchange and encourage conversations from all parties regarding a broad range of important issues regarding the energy transition and worldwide sustainable development.

The full event record is available on ISETS YouTube Channel.

(Feeds：Achmed Shahram; Editor, Yi JIN)