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http://ssrn.com/abstract=1008395
 
 

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The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so Different from the 1970s?


Olivier J. Blanchard


International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Jordi Galí


Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

August 18, 2007

MIT Department of Economics Working Paper No. 07-21

Abstract:     
We characterize the macroeconomics performance of a set of industrialized economies in the aftermath of the oil price shocks of the 1970s and of the last decade, focusing on the differences across episodes. We examine four different hypotheses for the mild effects on inflation and economic activity of the recent increase in the price of oil: (a) good luck (i.e. lack of concurrent adverse shocks), (b) smaller share of oil in production, (c) more flexible labor markets, and (d) improvements in monetary policy. We conclude that all four have played an important role.

Number of Pages in PDF File: 76

Keywords: oil, oil price, inflation, credibility, oil share, Great moderation, supply shocks, stagflation, monetary policy, real wage rigidities

JEL Classification: E20, E32, E52

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Date posted: August 26, 2007 ; Last revised: April 1, 2008

Suggested Citation

Blanchard, Olivier J. and Galí, Jordi, The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so Different from the 1970s? (August 18, 2007). MIT Department of Economics Working Paper No. 07-21. Available at SSRN: http://ssrn.com/abstract=1008395 or http://dx.doi.org/10.2139/ssrn.1008395

Contact Information

Olivier J. Blanchard (Contact Author)
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
202 623 7825 (Phone)
202 623 7271 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jordi Gali
Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )
Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain
+34 93 542 2754 (Phone)
+34 93 542 1746 (Fax)
HOME PAGE: http://www.econ.upf.es/~gali
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
Cambridge, MA 02142
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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