Working Paper: CEPR ID: DP6631
Authors: Olivier J. Blanchard; Jordi Gal
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
JEL Codes: E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| other adverse shocks (F69) | stagflation episodes of the 1970s (E65) |
| decrease in real wage rigidities (J39) | differential effects of oil prices over time (Q31) |
| changes in monetary policy (E52) | differential effects of oil prices over time (Q31) |
| decline in the share of oil in the economy (L71) | differential effects of oil prices over time (Q31) |
| oil price shocks (Q43) | macroeconomic variables (E19) |
| oil price shocks (Q43) | GDP growth (O49) |
| oil price shocks (Q43) | inflation (E31) |
| oil prices (L71) | economic performance (P17) |