Why have large declines in oil prices and in the rig count not triggered a more dramatic decline in production? At what price level would a large share of U.S. shale oil production lose economic viability?

We estimate a New Keynesian general-equilibrium open economy model to examine how changes in oil prices affect the macroeconomy. Our model allows oil price changes to be transmitted through temporary demand and supply channels (affecting the output gap), as well as through persistent supply side...