Following Iraq’s invasion of Kuwait, oil prices temporarily doubled. This paper examines the hypothesis that the U.S. economy had changed following previous oil price shocks, so that the 1990 oil price rise (and its subsequent decline) had smaller eflects than previously. It also examines a related hypothesis that such a transitory oil price hike would have little or no macroeconomic effect. It surveys and rejects arguments for a reduced impact qf oil price shocks andfor hysteresis. The article argues that recent experience was comparable in magnitude to earlier shocks and that there were comparable macroeconomic developments and changes in the composition of output. The paper concludes with a test of the effect of energy prices on the misery index and shows that recent changes in misery are consistent with previous experience.
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