ABSTRACT
This study addresses the question of whether the two energy price shocks in the 1970s had an important adverse effect on output and employment in the United States and other industrial countries. The conclusion, in brief, is that no such effect can be found. This conclu sion emerges despite the sudden deterioration in economic perform ance around the world after both energy price shocks, of 1973-74 and 1979-80.1 A closer look at the possible mechanisms by which the price shocks may have exerted their influence fails to find convincing evi dence that energy prices caused the widespread dislocations in eco nomic activity. An alternative explanation that is consistent with the facts is that the macroeconomic stabilization policies implemented in key countries after each energy price shock were responsible for the worldwide recession. This possibility raises the question of whether a change in monetary and fiscal policy could have avoided the economic debacle of the 1970s.12
