On the macroeconomic effects of energy price shocks

Abstract

Energy price shocks are widely believed to have severe macroeconomic effects, although this conclusion is far from unanimous in the economics literature. An analysis of disaggregated industry data for four countries after each energy price shock in the 1970s reinforces doubts about the role of energy in these recessions. There was no similarity in the impact on output and employment across industries between the two recessions, and no consistent relationship between industry activity and energy intensity by industry. In addition, there is no evidence to support either the wage rigidity hypothesis or the capital obsolescence hypothesis as an explanation of the effect of energy price shocks on macroeconomic behavior.