Oil-induced stagflation: a comparison across major G7 economies and shock episodes

Abstract

This article finds strong evidence of oil-induced stagflation in major G7 economies. Oil shocks provoked output losses and higher inflation on a widespread basis from the mid-1970s to the early 1980s, as well as – to a lesser extent – in the new millennium.

Acknowledgements

Views expressed here are those of the authors and do not necessarily reflect the position of the ECB. The usual disclaimer applies.

Notes

¹While we did not attempt estimation for relatively large economies such as Canada and Spain, we did try the various specifications used in this article on widely available data for Japan – the world's second largest economy. This did not yield meaningful results.

²We similarly construct scaled, net and net3 oil price decrease variables, which are never statistically significant, except for the French net model.

³All results referred to in this paragraph are available from the authors upon request.

⁴Two quarters (2001Q1, 2003Q2) fall under this category.

⁵Historical decompositions can be computed from 1973Q3 except for the UK, where they begin 1 year later. For related use of projections as benchmark, see Gottschalk (2005) and Jiménez-Rodríguez and Sánchez (2009).