ABSTRACT
The big rise in international petroleum prices that began in October 1973, following the Arab–Israeli War, was the first of several negative “supply shocks” that hit the economies of major developing nations like Brazil. In the mainstream economic interpretation of this kind of event, such a supply shock lowers the level of real economic activity or slows its rate of growth and raises both the price level and the rate of inflation. The first shock, and the subsequent one of 1979–1980, clearly had such effects in Brazil. Real GDP growth rates, which had averaged more than 11 percent between 1968 and 1973, fell to a little more than 6 percent for the rest of the decade. Rates of inflation more than doubled after the first shock, and then more than doubled again after the second shock. In retrospect, while Brazil's long period of macroeconomic instability in the two decades after 1974 may have been primarily home grown, it was clearly aggravated by these external oil shocks.
