Jim Devine wrote:
real energy prices (the consumer price index for energy divided by the
over-all CPI for urban consumers) did see a big spike from 1999 to 2000
(first 11 months), one akin to those of 1973-1974, 1978-1979, and
1979-1980
in terms of size.
For those interested in seeing what the Fed itself thinks, Mark A. Hooker
wrote a paper in 1997 called Exploring the Robustness of the Oil
Price-Macroeconomy Relationship [Federal Reserve Board, Revised, October
1997 JEL Classification Codes E32, E37]:
Abstract:
This paper reexamines the oil price-macroeconomy relationship with rolling
Granger causality and structural stability tests. It finds that the
relationship broke down amidst the falling oil prices and market collapse of
the 1980s, suggesting misspecification of the oil price rather than a
weakened relationship. Some proposed respecifications of the oil price yield
considerable improvements, although they are not sufficient to achieve
Granger causality of output unless interest rates are excluded from the VAR.
There is some support for the explanation that oil prices affect the economy
indirectly by inducing monetary policy responses, but this is incomplete and
some evidence of misspecification remains. <<
Rather than hubris, this paper, if it truly represents any form of conscious
life inside the Fed, also reflects alarming degrees of denial.