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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.

Suggested Citation

  • Blanchard, Olivier J & Galí, Jordi, 2008. "The Macroeconomic Effects of Oil Shocks: Why are the 2000s so Different from the 1970s?," CEPR Discussion Papers 6631, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6631
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    More about this item

    Keywords

    Great Moderation; Monetary policy credibility; Real wage rigidities; Sticky Prices;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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