Oil, the Economy, and Monetary Policy

Soaring oil prices have caused speculation about the prospects for a national recession this winter. These concerns seem to be well grounded; all but one of the eight post-World War II recessions in the United States were preceded by an oil price shock. However, there is also evidence that the influence of oil prices on economic performance has diminished. This article examines the impact of an oil shortage on the U.S. economy from a theoretical perspective, reviews the effects that such shocks have had in the past, and discusses the problems that these crises present for monetary policy.