Friday, November 05, 2004

Myths about Costly Oil

Business Week (latest edition dated Nov 15) has an article discussing research by two economists at Univ of Mich regarding why Oil is a "logical villain". The research paper addresses four points of conventional wisdom 1) High oil prices slow the economy 2) Oil price shocks cause inflation 3)1970s stagflation can be explained by oil and 4) OPEC is powerful and why the conventional wisdom does not hold true. Their conclusion is that Oil price shocks "may contribute to recession without necessarily being pivotal" and "disturbances in the oil market are likely to matter less for U.S. macroeconomic performance than has commonly been thought". I sure hope their conclusions are true this time around as well.


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