The Price of Oil and World Inflation and Recession

New evidence shows that the commonly-held assumption that the 1973-74 oil price increase directly affected US and world inflation and subsequent recession is consistent with the empirical data. An extended Lucas-Varro real-income equation applied to the US, United Kingdom, Canada, France, Germany, Italy, Japan, and the Netherlands gives mixed results, partly because of price control and decontrol programs. Simulation experiments on the price-control variable using US data finds strong effects. Further studies can be made when consistent international data is available for the 1979-80 period. 18 references, 4 figures, 3 tables. (DCK)