
Contents
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7.1 Introduction 7.1 Introduction
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7.1 Relation to the Literature 7.1 Relation to the Literature
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7.2 Basic Facts 7.2 Basic Facts
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7.3 Estimating the Effects of Oil Price Shocks Using Structural VARs 7.3 Estimating the Effects of Oil Price Shocks Using Structural VARs
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7.3.1 Impulse Responses 7.3.1 Impulse Responses
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7.3.2 Variance and Historical Decompositions 7.3.2 Variance and Historical Decompositions
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7.4 U.S. Evidence Based on Rolling Bivariate Regressions 7.4 U.S. Evidence Based on Rolling Bivariate Regressions
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7.5 Modeling the Macroeconomic Effects of Oil Price Shocks: A Simple Framework 7.5 Modeling the Macroeconomic Effects of Oil Price Shocks: A Simple Framework
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7.5.1 The Role of Oil 7.5.1 The Role of Oil
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7.5.2 Households 7.5.2 Households
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7.5.3 Firms 7.5.3 Firms
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7.5.4 Equilibrium 7.5.4 Equilibrium
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7.5.5 Implications for GDP and the GDP Deflator 7.5.5 Implications for GDP and the GDP Deflator
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7.5.6 Quantifying the Effects of Oil Price Shocks 7.5.6 Quantifying the Effects of Oil Price Shocks
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7.6 Three Hypotheses On the Changing Effects of Oil Price Shocks 7.6 Three Hypotheses On the Changing Effects of Oil Price Shocks
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7.6.1 Changes in Real Wage Rigidities 7.6.1 Changes in Real Wage Rigidities
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7.6.2 Changes in Monetary Policy 7.6.2 Changes in Monetary Policy
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7.6.3 Declining Oil Shares 7.6.3 Declining Oil Shares
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7.7 Concluding Comments 7.7 Concluding Comments
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Appendix A A New-keynesian Model for an Oil-importing Economy Appendix A A New-keynesian Model for an Oil-importing Economy
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Households Households
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Firms Firms
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Consumption and Gross Output Consumption and Gross Output
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Gross Output, Value Added, and the Gdp Deflator Gross Output, Value Added, and the Gdp Deflator
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Price Setting Price Setting
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Appendix B Computation of the Oil Share Appendix B Computation of the Oil Share
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References References
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Comment Comment
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The Importance of Reductions in Real Wage Rigidity The Importance of Reductions in Real Wage Rigidity
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Blanchard and Galí's Model of Markup Increases: Noncredible Monetary Policy Blanchard and Galí's Model of Markup Increases: Noncredible Monetary Policy
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Changes in the Share of Energy Changes in the Share of Energy
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Alternatives Alternatives
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References References
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7 The Macroeconomic Effects of Oil Price Shocks: Why Are the 2000s so Different from the 1970s?
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Published:March 2010
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Abstract
This chapter discusses the large output losses and the rises in inflation rates that accompanied the two oil shocks of 1970 in most industrialized countries, and shows the more recent absence of analogous effects, even though the rise in oil prices was of a similar magnitude. Using a Value at Risk (VAR) to identify exogenous oil price shocks, the chapter shows that the latter can only account for a relatively small part of the stagflationary episodes of 1970, suggesting that shocks other than oil but coinciding in time with the latter should also be held responsible for the dismal macroeconomic performance of that period. Three alternative explanations for the dampening effects of oil price shocks, that is, a smaller share of oil in production and consumption, more flexible labor markets, and an enhanced credibility of monetary policy are also given and being discussed in this chapter.
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