Oil Shocks: They Ain't What They Used to Be

There have been two periods of large and sustained increases in oil prices during the last four decades. The first took place in the 1970s, and the real increase in oil prices came with large increases in inflation and a sharp economic slowdown. The second started in the late 1990s and has continued through the current decade. Yet, during that time, growth has been sustained, and inflation has remained low. Why? In a new paper, “The Macroeconomic Effects of Oil Prices: Why are the 2000s so Different from the 1970s?,’’ Class of 1941 Professor Olivier Blanchard (Ph.D. ’77) and Jordi Galí (Ph.D. ’89), Director of CREI in Barcelona, offer a series of explanations.