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

Olivier Blanchard () and Jordi Galí

No 6631, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cba, nep-ene and nep-mac
Date: 2008-01
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Working Paper: The Macroeconomic Effects of Oil Shocks: Why are the 2000s So Different from the 1970s? (2007)
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