The world has increased its resilience to increases in the price of oil, according to a researcher at the International Monetary Fund. Writing in IMF Survey Magazine, Jorg Decressin says "fundamental changes in the workings of the global economy and the use of macroeconomic policy" have enabled the world to absorb a quadrupling of oil prices during the past decade "with relatively little disruption." Unlike those of the 1970s and 1980s, recent surges have not triggered global recessions, Decressin points out. IMF research offers five reasons:
• Price hikes since 2000 have resulted largely from stronger-than-expected demand from emerging-market economies rather than supply disruptions. The demand growth comes from economic growth, which benefits the countries in which it occurs and the countries that sell them goods and services.
• Central banks and economies are better than they used to be in dealing with price shocks. Earlier, inflation fears made workers demand higher wages. Wage-price spirals occurred. Now, central more effectively moderate wage demands by convincing workers that rising oil prices won't create inflation. They thus can concentrate on promoting economic recovery rather than raising interest rates to lower inflationary expectations.
• Revenue collected by oil-exporting countries recycles to oil-importing countries, helping the latter group lower interest rates and support growth and investment.
• Economies have become more efficient with energy use. The energy required to produce a unit of income has declined steadily for 40 years. Emerging-market economies are joining the trend, which is expected to continue.
• Major energy-using countries have diversified their sources of oil imports as well as the forms of energy they use. This trend, too, is expected to continue, diminishing energy users' vulnerability to supply disruption.
Despite the improvement, Decressin writes, "Large, abrupt price changes remain difficult to absorb, particularly if they come from supply disruptions." When the main price driver is demand, though, the key, according to this analysis, is to ensure that both oil and money remain free to move.
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