Working Paper: NBER ID: w13368
Authors: Olivier J. Blanchard; Jordi Gali
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 labor markets, and (d) improvements in monetary policy. We conclude that all four have played an important role.
Keywords: oil shocks; macroeconomic performance; inflation; economic activity
JEL Codes: E20; E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Oil price shocks (Q43) | Inflation (E31) |
| Oil price shocks (Q43) | Economic activity (E29) |
| Decrease in the share of oil in production (L71) | Economic impact of oil price changes (F69) |
| Improvements in monetary policy (E52) | Stability of economic environment (E32) |
| Greater flexibility in labor markets (J49) | Adjustment to shocks (F32) |
| Oil price shocks (Q43) | Stagflation in the 1970s (E65) |
| Oil price shocks (Q43) | Smaller impact on inflation and output in recent periods (E31) |