The Macroeconomic Effects of Oil Shocks: Why are the 2000s so Different from the 1970s?
79 Pages Posted: 5 Jun 2008
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The Macroeconomic Effects of Oil Shocks: Why are the 2000s so Different from the 1970s?
Date Written: January 2008
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 labour markets, and (d) improvements in monetary policy. We conclude that all four have played an important role.
Keywords: Great Moderation, Monetary policy credibility, Real wage rigidities, Sticky Prices
JEL Classification: E32
Suggested Citation: Suggested Citation
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