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Are There Useful Lessons from the 1990-91Oil Price Shock?

Abstract:
Following Iraqs invasion of Kuwait, oil prices temporarily doubled. This paper examines the hypothesis that the U.S. economy had changed following previous oil price shocks, so that the 1990 oil price rise (and its subsequent decline) had smaller effects than previously. It also examines a related hypothesis that such a transitory oil price hike would have little or no macroeconomic effect. It surveys and rejects arguments for a reduced impact of oil price shocks and for hysteresis. The article argues that recent experience was comparable in magnitude to earlier shocks and that there were comparable macroeconomic developments and changes in the composition of output. The paper concludes with a test of the effect of energy prices on the misery index and shows that recent changes in misery are consistent with previous experience.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation; Energy Security and Geopolitics – Energy Security

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
Q48 - Energy: Government Policy

Keywords: Oil price shocks, GDP Growth, US, energy policy, SPR

DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No4-9


Published in Volume14, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.