ary memories of the 1973 oil
shock, when prices quadrupled, and 1979-80, when they also almost tripled.
Both previous shocks resulted in double-digit inflation and global recession.
. . . Even if the impact will be more modest this time than in the past,
dear oil will still leave some mark. Inflation will be higher and output will be
lower than they would be otherwise.
Academic economists, even those who may not fully agree with the
prevailing view, have done little to qualify these accounts of stagflation.
On the one hand, the recent scholarly literature has focused on the
relationship between energy prices and economic activity without explicitly
addressing stagflation (see, e.g., Hamilton, 1983, 1985, 1988, 1999;
Rotemberg and Woodford, 1996). On the other hand, some authors
(e.g., Bohi, 1989; Bernanke, Gertler, and Watson, 1997) have stressed not
the direct effects of oil price increases on output and inflation, but possible
indirect effects arising from the Federal Reserve's response to the
inflation presumably caused by oil price incr