The recent World Economic Outlook contained an extensive discussion of the potential impact of higher prices.4 The purpose of this paper is to expand on that discussion in the light of developments since then. The paper is divided into three sections. Section I reviews the causes underlying the recent oil price increase and the outlook for 2001. Section II discusses the potential impact of a sustained $5 per barrel increase in the price of oil on the global economy, focusing on the key channels through which it operates, and the effects of differing policy responses. Section III provides a summary and includes a discussion of main policy implications for developed and developing countries. An Appendix reviews lessons from earlier oil price increases.
Since late November, oil prices have fallen back significantly, reflecting both the slowing of global economic activity-which to some degree, of course, itself reflects higher oil prices-and the impact of recent OPEC production increases, resulting in a rising level of stocks. As of December 20th, the Fund's reference price had fallen back to just over $22 per barrel, while futures markets suggest that the average price of oil in 2001 will be just under $24, only $1 higher than in the original WEO baseline. While oil prices remain highly volatile, if this decline is sustained the recent spike in oil prices would be shorter lived than assumed in the discussion below, and the resulting impact on growth and inflation would be correspondingly less severe.The recent World Economic Outlook contained an extensive discussion of the potential impact of higher prices.4 The purpose of this paper is to expand on that discussion in the light of developments since then. The paper is divided into three sections. Section I reviews the causes underlying the recent oil price increase and the outlook for 2001. Section II discusses the potential impact of a sustained $5 per barrel increase in the price of oil on the global economy, focusing on the key channels through which it operates, and the effects of differing policy responses. Section III provides a summary and includes a discussion of main policy implications for developed and developing countries. An Appendix reviews lessons from earlier oil price increases.
Since late November, oil prices have fallen back significantly, reflecting both the slowing of global economic activity-which to some degree, of course, itself reflects higher oil prices-and the impact of recent OPEC production increases, resulting in a rising level of stocks. As of December 20th, the Fund's reference price had fallen back to just over $22 per barrel, while futures markets suggest that the average price of oil in 2001 will be just under $24, only $1 higher than in the original WEO baseline. While oil prices remain highly volatile, if this decline is sustained the recent spike in oil prices would be shorter lived than assumed in the discussion below, and the resulting impact on growth and inflation would be correspondingly less severe.
The effect of petroleum
which is attributable to a decrease in biological processes such as growth or the effect may be due to
