1. Paul Norman Forrest Taliaferro

2.  OPEC imposed an embargo on oil shipments to U.S. and the Netherlands.  Buyers tried to build precautionary inventories, bidding up market oil prices.  Oil prices quadrupled  The world economy was thrown into deep recession  Current account balances of oil-importing countries worsened

4.  Oil shock directly raised prices of petroleum and cost of energy using industries.  The worldwide inflationary pressures had become entrenched in the wage setting process.  Pressures continued to contribute to inflation in spite of the deteriorating employment picture.

5.  Inflationary expectations driving new wage contracts put additional upward pressure on commodity prices  Speculators built up stocks of commodities  Central banks proved unwilling to combat inflationary pressures at the cost of yet higher unemployment

6. New term: Stagflation  Combination of stagnating output and high inflation  Results from two factors: 1. Increase in commodity prices 2. Expectation of future inflation

7.  No commitment to fixed rates would have been credible  Most industrial countries shifted to expansionary fiscal and monetary policies  Central Banks reacted to rising unemployment & by mid 1975, strong output recovery was underway  The 1974 current deficit turned to surplus in 1975 and was near zero in 1976.

8.  OPEC countries had a substantial CA surplus in 1975, matched by the deficit of the oil- importing developing countries  Freed from defend a fixed exchange rate, each government chose the monetary and fiscal response that best suited its goals  Recovery slowed in late 1976. Unemployment remained persistently high.

9.  U.S. urged Germany & Japan to also adopt expansionary policies  U.S. acted alone, reignited inflation and pushed its CA into deficit  A steep depreciation of the dollar started in 1976

11.  Oil Exports from Iran fell  Oil prices rose from $13 in 1978 to $32 in 1980  More stagflation for oil importing countries  Different response to second oil shock  Industrial Countries restricted monetary growth  Central Banks worried inflation might be hard to reverse later if it were allowed to be built into inflationary expectations and the wage setting process,