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

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  • Blanchard, Olivier J
  • Galí, Jordi

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6631.

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Date of creation: Jan 2008
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Handle: RePEc:cpr:ceprdp:6631

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Keywords: Great Moderation; Monetary policy credibility; Real wage rigidities; Sticky Prices;

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