Global Oil Shocks: A Brief History and Their Effect on Output, Inflation, and Unemplyment in America

Abstract

The relationship between oil price fluctuations and American macroeconomic performance has been studied extraneously since the creation of OPEC in 1960. This paper first provides an extensive background on the history of the oil industry. Secondly, the paper will review literature written not only on changes in oil prices as they pertain to output, inflation, and unemployment, but will also identify the main causes of this relationship, as well as look to differentiate between characteristics of oil price shocks of the 20th and 21st centuries. Findings of this research are that changes in oil prices directly affect macroeconomic behavior, the relationship is multi-dimensional, recessions are commonly associated with oil shock although they are not a primary catalyst, and finally that shocks of the 21st century do not seem to have as big of an impact as those of the 20th century because they have come to be expected.