The Oil Crisis in the Seventies and The Monetary Policy

In the early seventies of the past century, most of the developed countries’ economies started to tremble due to the unexpected oil shock, fired up by the OAPEC (Organization of Arab Petroleum Exporting Countries) proclaiming a severe restriction in the oil’s supply. Regarding to the macroeconomic theory, at this point the dominant one was still the Keynesian macroeconomics, even though the monetarist theories, coming especially from relevant articles like Friedman (1959, 1968) or Friedman and Schwartz (1969), were starting to get widely accepted by many economists. At this point, most of the Keynesian economists thought that the role of the government in the economy was to play successfully with the so-called Phillips Curve, Phillips (1958), hence adjusting the monetary policies in order to control the unemployment through the inflation rate. At that point, neoclassical economists kept trying to explain growth mostly with basic deterministic models that were completely unable to explain business cycles which, empirically, were shown by the historical data. With the explosion of the oil crisis, many central banks applied what the dominant theory suggested, thus expanding the monetary policy in order to reduce the unemployment with the payoff of a higher inflation rate. As Nelson (2004) points, the results were not as expected: many countries got into severe inflation spirals while not correcting the unemployment and, therefore, while falling deeper into the crisis. ThisShow MoreRelatedA Report On Nigerian Government1250 Words   |  5 Pagescountry makes thru the oil companies operating in their country. Most profits are taken from the public and are kept held with Nigerian officials. People in the Nigeria are currently living in extreme poverty. 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