NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Monetary Explanation of the Great Stagflation of the 1970s

Robert Barsky, Lutz Kilian

NBER Working Paper No. 7547
Issued in February 2000
NBER Program(s):   ME

The origins of stagflation and the possibility of its recurrence continue to be an important concern among policymakers and in the popular press. It is common to associate the origins of the Great Stagflation of the 1970s with the two major oil price increases of 1973/74 and 1979/80. This paper argues that oil price increases were not nearly as essential a part of the causal mechanism generating stagflation as is often thought. We provide a model that can explain the bulk of stagflation by monetary expansions and contractions without reference to supply shocks. Monetary fluctuations also help to explain variations in the price of oil (and other commodities) and help to account for the striking coincidence of major oil price increases and worsening stagflation. In contrast, there is no theoretical presumption that oil supply shocks are stagflationary. In particular, we show that oil supply shocks may quite plausibly lower the GDP deflator and that there is little independent evidence that oil supply shocks actually raised the deflator (as opposed to the CPI). The oil supply shock view also fails to explain the dramatic surge in the price of other industrial commodities that preceded the 1973/74 oil price increase and the fact that increases in industrial commodity prices lead oil price increases in the OPEC period.

download in pdf format
   (4949 K)

email paper

This paper is available as PDF (4949 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7547

Users who downloaded this paper also downloaded these:
Barsky and Kilian w10855 Oil and the Macroeconomy Since the 1970s
Barsky and Kilian Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative
Barsky and Kilian w8389 Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative
Blinder and Rudd w14563 The Supply-Shock Explanation of the Great Stagflation Revisited
Blinder and Rudd The Supply-Shock Explanation of the Great Stagflation Revisited
 
Publications
Activities
Meetings
Data
People
About

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

Contact Us