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

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Author Info
Olivier J. Blanchard
Jordi Gali

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13368.

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Date of creation: Sep 2007
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Handle: RePEc:nbr:nberwo:13368

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Find related papers by JEL classification:
E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  3. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April. [Downloadable!] (restricted)
  4. Bernanke, Ben S. & Gertler, Mark & Waston, Mark, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Working Papers 97-25, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  7. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 195-213, October. [Downloadable!] (restricted)
  8. Hooker, Mark A, 2002. "Are Oil Shocks Inflationary? Asymmetric and Nonlinear Specifications versus Changes in Regime," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 540-61, May.
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  10. Jose De Gregorio. & Oscar Landerretche. & Christopher Neilson., 2007. "Another Pass-Through Bites the Dust? Oil Prices and Inflation," Working Papers Central Bank of Chile 417, Central Bank of Chile. [Downloadable!]
  11. Lutz Kilian, 2008. "A Comparison of the Effects of Exogenous Oil Supply Shocks on Output and Inflation in the G7 Countries," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 78-121, 03. [Downloadable!] (restricted)
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  13. Efrem Castelnuovo & Sergio Nicoletti-Altimari & Diego Rodriguez-Palenzuela, 2003. "Definition of price stability, range and point inflation targets - the anchoring of long-term inflation expectations," Working Paper Series 273, European Central Bank. [Downloadable!]
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  15. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October. [Downloadable!] (restricted)
    Other versions:
  16. Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "The macroeconomic effects of inflation targeting," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 51-80. [Downloadable!]
  17. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2001-1), pages 135-174. [Downloadable!]
  18. Herrera, Ana Mar?a & Pesavento, Elena, 2009. "Oil Price Shocks, Systematic Monetary Policy, And The ?Great Moderation?," Macroeconomic Dynamics, Cambridge University Press, vol. 13(01), pages 107-137, February. [Downloadable!]
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  20. Robert B. Barsky & Lutz Kilian, 2002. "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 137-198 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  21. Edelstein, Paul & Kilian, Lutz, 2007. "Retail Energy Prices and Consumer Expenditures," CEPR Discussion Papers 6255, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kilian, Lutz & Vega, Clara, 2008. "Do Energy Prices Respond to U.S. Macroeconomic News? A Test of the Hypothesis of Predetermined Energy Prices," CEPR Discussion Papers 7015, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Francesco Nucci & Marianna Riggi, . "The Great Moderation and Changes in the Structure of Labor Compensation," Working Papers 124, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  3. Christian Merkl, 2009. "The Inflation-Output Tradeoff: Which Type of Labor Market Rigidity Is to Be Blamed?," Kiel Working Papers 1495, Kiel Institute for the World Economy. [Downloadable!]
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