Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative / Robert B. Barsky, Lutz Kilian.

Format:

Book

Author/Creator:

Barsky, Robert B.

Contributor:

National Bureau of Economic Research.

Kilian, Lutz.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8389.

NBER working paper series no. w8389

Language:

English

Subjects (All):

Inflation (Finance)--United States.

Monetary policy United States.

Balance of trade.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Cambridge, Massachusetts : National Bureau of Economic Research, 2001.

Summary:

This paper argues that major oil price increases were not nearly as essential a part of the causal mechanism that generated the stagflation of the 1970s as is often thought. There is neither a theoretical presumption that oil supply shocks are stagflationary nor robust empirical evidence for this view. In contrast, we show that monetary expansions and contractions can generate stagflation of realistic magnitude even in the absence of supply shocks. Furthermore, monetary fluctuations help to explain the historical movements of the prices of oil and other commodities, including the surge in the prices of industrial commodities that preceded the 1973/74 oil price increase. Thus, they can account for the striking coincidence of major oil price increases and worsening stagflation.

Notes:

Print version record

July 2001.