Abstract
One of the principal economic phenomena of the period since the early 1970s has been the fluctuating price of oil. As shown by Table 12.1 this rose dramatically in 1973–74, rose again at the end of the 1970s and then stabilised and fell during the first half of the 1980s.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Notes and References
Changing oil prices have been put forward as just one explanation of variations in global macroeconomic performance since the early 1970s. For a review of alternative explanations, see chapter 2 of Graham Bird’s World Finance and Adjustment: An Agenda for Reform (London: Macmillan, 1985).
Short-term real interest rates for the major industrial countries were −0.3 in 1976, −0.5 in 1977 and −0.3 in 1978.
However, there remains some debate in the literature concerning just how inflationary was the increase in oil prices. A counter argument is that the increase in oil prices simply reflected a response to increasing demand and was not a cost-push phenomenon.
The economics of international debt are not examined here. Interested readers can easily sample the ever-growing literature on the subject.
This is a particular feature of the ‘relative income hypothesis’, which is explained in most intermediate macroeconomics texts in the chapter dealing with the consumption function.
Changing oil prices will also influence exchange-rate expectations. Much has been written about the so-called ‘Dutch disease’ under which discovery of a natural resource or a rise in its price will cause exchange-rate appreciation which may have adverse consequences for the economy. Similarly, a fall in (say) the price of oil might lead to a fall in the exchange rates of oil producers. It is interesting to note, and intriguing to try and explain, that while the rise in oil prices at the end of the 1970s seemed to result in a sterling appreciation, the fall in oil prices in 1986 did not lead to an equivalent depreciation. Again the evidence seems to suggest that simple and unicausal models of exchange determination are misplaced. Furthermore, there may be downward rigidities in exchange rates just as there are in some other prices.
It may also be noted that falling oil prices can create severe problems for oil-producing countries especially if these countries are heavily indebted. To the extent that these countries are forced to cut back on imports in order to strengthen their balance of payments, a demand deflationary impact may be transmitted to the rest of the world. This needs to be set against the otherwise generally expansionary effects of falling oil prices.
Author information
Authors and Affiliations
Copyright information
© 1987 Graham Bird
About this chapter
Cite this chapter
Bird, G. (1987). The Global Macroeconomic Effects of Changing Oil Prices. In: International Macroeconomics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-137-09829-0_12
Download citation
DOI: https://doi.org/10.1007/978-1-137-09829-0_12
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-0-333-44411-5
Online ISBN: 978-1-137-09829-0
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)