THE MACROECONOMICS OF "OIL PRICES" AND "ECONOMIC SHOCKS": LESSONS FROM THE 1970S

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Deepanshu Mohan ORCID logo

https://doi.org/10.22495/rgcv5i4art7

Abstract

This paper examines the relationship between oil price shocks and recessions and focuses particularly on the period of stagflation in the 1970s. Nearly every recession in the U.S. since WWII has been preceded by an oil price shock, and examining the literature as to the causal mechanisms finds there are a range of opinions from supply and demand side factors to the precipitated monetary policy response. Evaluating these across a number of countries finds that the mechanisms at play are complex and disputed. This paper reviews the literature and evaluates the various theories put forward before concluding that whilst oil plays a key role in the economy, the recessions following oil price shocks are more likely to be as a result of monetary policy decisions than the oil price shocks per se.

Keywords: Oil Price, Economic Shocks, the USA

How to cite this paper: Mohan, D. (2015). The macroeconomics of "Oil Prices" and "Economic Shocks": Lessons from the 1970s. Risk governance & control: Financial markets & institutions, 5(4), 80-90. https://doi.org/10.22495/rgcv5i4art7