Oil and the Macroeconomy Since the 1970s

Robert Barsky, Lutz Kilian

NBER Working Paper No. 10855
Issued in October 2004
NBER Program(s):   EFG

Increases in oil prices have been held responsible for recessions, periods of excessive inflation, reduced productivity and lower economic growth. In this paper, we review the arguments supporting such views. First, we highlight some of the conceptual difficulties in assigning a central role to oil price shocks in explaining macroeconomic fluctuations, and we trace how the arguments of proponents of the oil view have evolved in response to these difficulties. Second, we challenge the notion that at least the major oil price movements can be viewed as exogenous with respect to the US macroeconomy. We examine critically the evidence that has led many economists to ascribe a central role to exogenous political events in modeling the oil market, and we provide arguments in favor of 'reverse causality' from macroeconomic variables to oil prices. Third, although none of the more recent oil price shocks has been associated with stagflation in the US economy, a major reason for the continued popularity of the oil shock hypothesis has been the perception that only oil price shocks are able to explain the US stagflation of the 1970s. We show that this is not the case.

download in pdf format
   (195 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10855

Published: Barsky, Robert B. and Lutz Kilian. "Oil and The Macroeconomy Since The 1970s," Journal of Economic Perspectives, 2004, v18(4,Fall), 115-134. citation courtesy of

Users who downloaded this paper also downloaded* these:
Blanchard and GalĂ­ The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?
Barsky and Kilian Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative
Krugman Oil Shocks and Exchange Rate Dynamics
Krugman w0554 Oil and the Dollar
Hamilton w16186 Nonlinearities and the Macroeconomic Effects of Oil Prices
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us