Abstract

http://ssrn.com/abstract=2009899
 
 

Citations (6)



 


 



Why are the 2000s so Different from the 1970s? A Structural Interpretation of Changes in the Macroeconomic Effects of Oil Prices in the US


Olivier J. Blanchard


Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

Marianna Riggi


Bank of Italy

November 23, 2011

Bank of Italy Temi di Discussione (Working Paper) No. 835

Abstract:     
In the 1970s, large increases in the price of oil were associated with sharp decreases in output and large increases in inflation. In the 2000s, even larger increases in the price of oil were associated with much milder movements in output and inflation. Using a structural VAR approach, Blanchard and Gali (2009) argued that this reflected a change in the causal relation from the price of oil to output and inflation. They then argued that this change could be due to a combination of three factors, namely, a smaller share of oil in production and consumption, lower real wage rigidity and better monetary policy. Their argument, based on simulations of a simple new-Keynesian model, was informal. Our purpose in this paper is to take the next step, and to estimate the explanatory power and contribution of each of these factors. To do so, we use a minimum distance estimator that minimizes, over the set of structural parameters and for each of two samples (pre- and post-1984), the distance between the empirical SVAR-based impulse response functions and those implied by a new-Keynesian model. Our empirical results point to an important role for all three factors.

Number of Pages in PDF File: 45

Keywords: oil prices, wage rigidities, monetary policy credibility

JEL Classification: E20, E32, E52

working papers series


Download This Paper

Date posted: February 24, 2012  

Suggested Citation

Blanchard, Olivier J. and Riggi, Marianna, Why are the 2000s so Different from the 1970s? A Structural Interpretation of Changes in the Macroeconomic Effects of Oil Prices in the US (November 23, 2011). Bank of Italy Temi di Discussione (Working Paper) No. 835. Available at SSRN: http://ssrn.com/abstract=2009899 or http://dx.doi.org/10.2139/ssrn.2009899

Contact Information

Olivier J. Blanchard
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
Room E52-357
50 Memorial Drive
Cambridge, MA 02142
United States
617-253-8891 (Phone)
617-253-4096 (Fax)
HOME PAGE: http://mit.edu/blanchar/www/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
202 623 7825 (Phone)
202 623 7271 (Fax)
Marianna Riggi (Contact Author)
Bank of Italy ( email )
Via Nazionale 91
00184 Roma
Italy
Feedback to SSRN


Paper statistics
Abstract Views: 381
Downloads: 62
Download Rank: 207,508
Citations:  6

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.406 seconds