The Effects of External Inflationary Shocks

Abstract

THE ECONOMY IS ALWAYS VULNERABLE to a variety of external influences or shocks that have important impacts on income, employment, and prices. While these external shocks are unforeseeable and unavoidable, economic policy must somehow deal with their consequences.Lately an alarming number of upward jolts to prices have come from sources beyond the normal interaction of production, wages, and prices. One was the relative decline in the value of the dollar following the abandonment of the system of fixed exchange rates, which raised the prices of imported goods and contributed to the rise in farm prices as exports competed with domestic consumption. A number of other events shook the economy at about the same time. Crop failures in the Soviet Union resulted in a gigantic sale of American grain. The Peruvian anchovy catch mysteriously Note: The views expressed in this paper are our own and do not necessarily reflect those of the Federal Reserve Board or its staff. We want to thank members of the Brookings panel for their many constructive comments on an earlier version of this paper. 13 1. While fiscal policy can, and probably should, play an important role in combating the effects of external shocks, this paper will deal only with monetary policy.

Oil price shocks and the macroeconomy of Nigeria: a non-linear approach

“…Others include the consequences for inflation (Pierce and Enzler, 1974;Mork, 1981;Bruno and Sachs, 1982); suggest that indirect transmission mechanisms may be the crucial means by which oil price shocks have macroeconomic consequences.…”

Recent oil price shock and Tunisian economy

“…Since oil is a basic input for the production, this latter and the labour productivity slow down. Other studies, such as Pierce and Enzler (1974), Hamilton (1988Hamilton ( , 2003, Ferderer (1996), Brown and Yucel (2002) and Cologni and Manera (2005) suggest that the economic activity is affected indirectly by the demand side and the real balance. The rise of the oil price led to a transfer of income from countries that import oil to countries that export it.…”

The puzzle of asymmetric effects of oil: New results from international stock markets

“…The symmetric channels are: real balances, the income transfer model, and finally, the potential output model. The real balance effect argues that an increase in oil prices would lead to inflation which lowers the quantity of real balances in the systems (see, for a detailed discussion on the impact of monetary policy Brown and Yücel, 2002;Mork, 1994;Pierce and Enzler, 1974). The income transfer explanation states that an increase of oil prices deteriorates terms of trade for oil importing countries.…”