Leading up to 2008, oil prices experienced a steady, upward trend. Then, in 2008 oil prices climbed to unprecedented highs of $147 per barrel in July, only to fall dramatically in a very short period of time to a low of $30 per barrel in December 2008. Since the end of 2008, oil prices have risen in 2009 and are now near $70 per barrel. The relatively recent dramatic movement in oil price has caused everyone from U.S. congressmen to ministers from the Organization of the Petroleum Exporting Countries (OPEC) to call into question the role of speculative traders in the crude oil market.
The demand for consumer credit is an area of economics that is of great interest to those in the lending community. While much research has been performed on this topic in the financial industry, the findings have been very closely guarded for competitive reasons. In this study, reduced form equations were derived to form the basis of a 2SLS regression model. This model was used to estimate the demand for consumer credit in the United States over the period 1973 � 2002. Six independent variables were included in the analysis: monetary base, unemployment rate, consumer confidence index, disposable personal income, federal funds interest rate and the price/barrel of oil.
Under the rational expectations hypothesis, there exists an objective probability law governing the state process, and economic agents know this law which coincides with their subjective beliefs. This rational expectations hypothesis has become the workhorse in macroeconomics and finance. However, it faces serious difficulties when confronting with asset markets data. Most prominently, Mehra and Prescott (1985) show that for a standard rational, representative-agent model to explain the high equity premium observed in the data, an implausibly high degree of risk aversion is needed, resulting in the equity premium puzzle. Weil (1989) shows that this high degree of risk aversion generates an implausibly high riskfree rate, resulting in the riskfree rate puzzle.
