This article compares responses to the first (1973/1974) and the second (1979/1980) oil price shocks by the central banks of Germany, Switzerland, Japan, the USA, the United Kingdom and Canada.

Faced with the first oil price shock the central banks of Germany, Switzerland and Japan continued the restrictive monetary policy stance, what allowed them to limit the impact of growing oil prices on inflation mostly to the first round effects. As a result, they quickly managed to slow down inflation growth to the levels lower than those in other analysed countries and, what is more, with lower costs as measured by the rise in unemployment. In contrast, the central banks of the USA, the United Kingdom and Canada, for fear of recession, turned abruptly towards expansive monetary policy stance. Consequently, in this group of countries inflation and unemployment in the second half of 1970s were higher.

Having in mind the experience of the first oil price shock, all the central banks under analysis reacted to the second oil price shock in a similar way: they tightened their monetary policies and showed strong determination in dampening inflation.

Keywords: monetary policy, monetary targeting, oil price shock.
JEL: E52, E58

  Elżbieta Skrzeszewska-Paczek, Central Banks' Response to oil price shocks in the 1970s - plik pdf; (221 KB)