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

78 Pages Posted: 10 Sep 2007 Last revised: 13 Jul 2022

See all articles by Olivier J. Blanchard

Olivier J. Blanchard

National Bureau of Economic Research (NBER); Peterson Institute for International Economics

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)

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Date Written: September 2007

Abstract

We characterize the macroeconomic 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.

Suggested Citation

Blanchard, Olivier J. and Gali, Jordi, The Macroeconomic Effects of Oil Shocks: Why are the 2000s so Different from the 1970s? (September 2007). NBER Working Paper No. w13368, Available at SSRN: https://ssrn.com/abstract=1012822

Olivier J. Blanchard (Contact Author)

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Jordi Gali

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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