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

Olivier J. Blanchard, Jordi Gali

NBER Working Paper No. 13368
Issued in September 2007, Revised in November 2007
NBER Program(s):The Economic Fluctuations and Growth Program

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.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w13368

Published: Gali, Jordi and Mark Gertler (eds.) International Dimensions of Monetary Policy. Chicago: University of Chicago Press, 2009.

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