![]() You can see that real oil prices have varied a lot over time, and large fluctuations tend to be concentrated over somewhat short periods. In essence, the “real” measure allows you to compare oil prices over time in a way that you can’t when inflation is also part of the change in price. 1 This removes the effect of inflation and thus gives a more accurate sense of what is happening to the price of the commodity itself. Since then, oil prices have regularly displayed volatility relative to the ’50s and ’60s.įigure 2 shows the “real” oil price, calculated by dividing the price of oil by the GDP deflator. In fact, the 1970s show two distinct jumps in oil prices: one was triggered by the Yom Kippur War in 1973, and one was prompted by the Iranian Revolution of 1979. The gray bars in this and all the following figures represent recessions, as defined by the National Bureau of Economic Research.Īs you can see from Figure 1, a long period of oil price stability was interrupted in 1973. ![]() The price shown is the monthly average spot price of a barrel of West Texas intermediate crude oil, measured in U.S. How have oil prices behaved in recent decades?įigure 1 shows the history of the price of oil since the early 1950s. ![]() Let me begin by discussing the evolution of oil prices over time. What a daunting question! With oil prices increasing rapidly in the recent past, it is hard not to wonder what has caused it and just what effect it might have on the rest of the economy.
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