Energy and real incomes
Ask how a lasting increase in fuel bills could change household discretionary spending. Consider which assumptions about household income or saving would soften the effect.
Athena · Scenario preview
Explore macroeconomic what-if scenarios
An oil price spike that lasts a few weeks poses a different risk from a supply disruption that persists for a year. Defining the shock and its duration is the first step in macroeconomic scenario analysis. The next is to identify how it could reach household incomes, business costs and the policy outlook.
Troia’s illustrated oil-shock walkthrough shows how an investment team could frame that discussion with Athena. It is a conceptual demonstration. The example supplies a question and a sequence of economic channels to examine. It carries no assigned probability or projected portfolio return.
Specify what changes
Start with a baseline, a single change and a horizon. For an oil shock, specify whether the price rise is temporary or sustained and whether it reflects supply disruption or stronger demand. A higher oil price can carry different information in those two cases.
Research workflow
- Define the shockState the cause, size or direction, and duration.
- Trace economic effectsIdentify direct price effects, possible second-round effects and policy questions.
- Locate portfolio riskIdentify exposures that depend most heavily on the affected assumptions.
Follow the effects in sequence
Fuel costs can affect headline prices quickly. The effect on underlying inflation depends on firms’ pricing decisions, wages and demand. Ask what policymakers would need to see before concluding that the shock has become persistent, then identify which portfolio exposures depend on that judgement.
In the investment process
Policy and duration
Consider a scenario in which the Fed keeps rates restrictive for longer. Identify whether the greatest exposure is to the timing of a rate change or to the eventual level of rates.
Example research question
How would a sustained oil supply shock change the inflation and growth risks facing our portfolio?Watch the illustrative oil-shock walkthrough ↗