The empirical literature on the macroeconomic impacts of oil supply shocks evolved as the new state of
the oil market revealed itself gradually after 1973.2 One of the initial beliefs following the 1973-74 price shock
was that the new, higher price of oil might be a permanent feature of a changed natural resource regime.
Accordingly, one recurrent theme was the aggregate economy’s response to a sudden, permanent price shock.
How would an economy adjust to the new circumstances?