HIGH OIL PRICES NOT SQUEEZING ECONOMIC GROWTH—YET

Conventional wisdom states that high oil prices lead to lower economic growth, cause inflation, and increase unemployment. Click here to enlarge imageThe US recessions of the 1970s, 1991, and 2001 were all associated with high oil prices, as shown in Fig. 1. The chart plots real oil prices vs. US real economic growth from the first quarter of 1973 to the second quarter of 2004.Contrary to conventional wisdom, Fig. 1 indicates that the recent increase in oil prices has not affected economic growth in the US. The same conclusion applies to most countries in the Organization for Economic Cooperation and Development and several states in Asia. Does the current situation contradict the conven…