The Macroeconomic Effects of Oil Shocks: Why are the 2000s So Different from the 1970s?
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 labor markets, and (d) improvements in monetary policy. We conclude that all four have played an important role.
We are grateful for helpful comments and suggestions to Julio Rotemberg, John Parsons, Lutz Kilian, José de Gregorio, Gauti Eggertson and participants at NBER ME Meeting, the NBER Conference on "International Dimensions of Monetary Policy'', and seminars at CREI-UPF. We thank Davide Debortoli for excellent research assistance, and the NSF and the Banque de France Foundation for financial assistance. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Gali, Jordi and Mark Gertler (eds.) International Dimensions of Monetary Policy. Chicago: University of Chicago Press, 2009.