Impact of Higher Energy Prices on the US Economy: 1973--1974. Technical Report.

摘要

A series of macroeconomic simulations that address the question of what would have happened to the US economy if energy prices had not risen at an extremely rapid rate during 1973 and 1974 is described. The results show that the Congressional Research Service estimate that the higher prices reduced the real output of the economy by $100 billion by the middle of 1975 is a vast overestimate and that a more realistic estimate is in the range of $14 to 45 billion. It is shown that fiscal policy adjustments (lower government spending because of lower prices) have minor effects on the impacts of lower energy prices but the extent of the impacts are closely related to the course of monetary policy. The monetary authorities can significantly reduce the impact of higher energy prices if they choose to do so and if the state of the economy will allow them to do so. Finally, it is demonstrated that the effects of energy price changes can be separated into direct price effects and income effects. The price effects are those directly associated with higher energy costs while the income effects are those that result from lower output and employment decisions which in term result from higher energy costs and reduced demand. The ratio of the price effects to the total effects are in range of 1 to 1.5 where accommodating monetary policy is undertaken and the range of 1.5 to 3.5 where accommodating monetary policy is not undertaken.