We also analyzed the impact of past oil price shocks on investment and we talked with firms in the energy sector to understand how they were responding to the price decline. The picture that emerged was of a sizable contraction of investment in the oil and gas sector in the near term.
4 And so in January 2015, and again in July, concerned about the impact of lower oil prices and the risks to inflation, and to facilitate the economy’s adjustment to its new circumstances, we lowered our policy rate. For insights into the longer horizon, we ran a simulation of the shock in our workhorse model, the Terms-of-Trade Economic Model (ToTEM).