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Economic growth, inflation and oil shocks: are the 1970s coming back?

  • Ana G�mez-Loscos
  • María Dolores Gadea
  • Antonio Monta�és

This article analyses the relationship between oil price shocks and the macroeconomic evolution of the Group of Seven (G7) countries. Using the Qu and Perron (2007) methodology, we endogenously identify three breaks in the nonlinear relationship across our 1970 to 2008 sample. We compute long-term multipliers and find that the response of output and inflation to oil price shocks is greatest in the 1970s and progressively disappears until the late 1990s. In contrast to the previous literature, we observe that both effects reappear in the 2000s, especially on inflation. Nevertheless, the transmission of oil price shocks to the economy is weaker than in the 1970s, which means that oil price shocks have lost some of their explanatory power. Precisely identifying these effects is crucial for the design of adequate economic measures to control or smoothen them.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 35 (December)
Pages: 4575-4589

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Handle: RePEc:taf:applec:44:y:2012:i:35:p:4575-4589
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