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Perhaps no other economic events in the post-World War II era have generated as much attention as the series of crude oil price shocks that have jolted the world economy since the OPEC boycott of 1973. A tremendous amount of space in the popular and professional literature has been devoted to analyzing the impacts of these shocks on the developed economies and the adjustments these shocks have induced. One residual of this literature has been a general impression that since 1973 the functional relationship between crude oil prices and the developed macroeconomies has been dramatically and fundamentally altered. Yet, to our knowledge, no one has formally tested this impression. Recent evidence of Hamilton (1983) suggests that crude oil prices had a strong impact on the U.S. business cycle well before 1973. Further, while textbook treatments of oil price shocks tend to highlight cost-push inflationary effects, the research of Berndt and Wood (1975, 1979) and Wilcox (1983) indicates the net complementarity between energy and capital in the U.S. economy is quite strong both before and after 1973. Thus, oil price shocks may have stronger real effects than generally believed. In this paper, we formally test three popular notions associated with the so-called
Gisser et al. (Sat,) studied this question.