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Download (Pdf) VOLUME 66 • NUMBER 10 • OCTOBER 1980 FEDERAL RESERVE BULLETIN Board of Governors of the Federal Reserve System Washington, D.C. PUBLICATIONS COMMITTEE Joseph R. Coyne, Chairman • Stephen H. Axilrod • John M. Denkler Janet O. Hart • James L. Kichline • Neal L. Petersen • Edwin M. Truman Naomi P. Salus, Coordinator • Sandra Pianalto, Staff Assistant The FEDERAL RESERVE BULLETIN is issued monthly under the direction of the staff publications committee. This committee is responsible for opinions expressed except in official statements and signed articles. The artwork is provided by the Graphic Communications Section under the direction of Peter G. Thomas. Editorial support is furnished by the Economic Editing Unit headed by Mendelle T. Berenson. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Table of Contents 817 THE IMPACT OF ing of negotiable order of withdrawal ac- RISING OIL PRICES ON THE MAJOR counts. FOREIGN INDUSTRIAL COUNTRIES Report on assets and liabilities of foreign The recent surge in the world price of oil branches of member banks, year-end has led to a strong swing toward deficit in 1979. the current-account balances, a slowing of Availability of description of the opera- economic activity, and an acceleration of tion of the discount window. inflation in the major foreign industrial countries. Correction of data on foreign currencies. Changes in Board staff. 825 INDUSTRIAL PROD UCTION Meeting of Consumer Advisory Council. Output increased about 1.0 percent in September. Revision of list of over-the-counter stocks that are subject to margin regulations. 827 STATEMENT TO CONGRESS Admission of three state banks to mem- bership in the Federal Reserve System. Vice Chairman Frederick H. Schultz pre- sents the views of the Board on proposed legislation that would preempt state limits 835 RECORD OF POLICY ACTIONS OF THE on interest rates and certain other charges FEDERAL OPEN MARKET COMMITTEE for extension of consumer credit but At its meeting on August 12, 1980, the would permit any state to reimpose such Committee agreed to specify a slightly ceilings by enacting overriding legislation, lower rate of growth for M-1A over the before the Small Business Oversight Sub- third quarter and higher rates for M-1B committee of the House Committee on and M-2 than the rates specified a month Small Business, September 23, 1980. earlier. Specifically, the Committee agreed that open market operations in the period 829 ANNOUNCEMENTS until the next meeting should be directed toward expansion of reserve aggregates Increase in the discount rate from 10 per- consistent with growth of M-1A, M-1B, cent to 11 percent. and M-2 over the period from June to Sep- Implementation of provisions of the Inter- tember at annual rates of about 6V2 per- national Banking Act that limit the inter- cent, 9 percent, and 12 percent respec- state banking activities of foreign banks in tively, provided that in the period before the United States. the next regular meeting the weekly aver- age federal funds rate remained within a Adoption of several technical amend- range of 8 to 14 percent. ments to Regulation E. (See Legal Devel- opments.) 841 LEGAL DEVELOPMENTS Interpretation of Regulation Z concerning Amendments to Regulations E and F; var- renegotiable rate mortgages. ious bank holding company and bank Adoption of policy statement on advertis- merger orders; and pending cases. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis AI FINANCIAL AND BUSINESS STATISTICS A116 FEDERAL OPEN MARKET COMMITTEE AND STAFF; ADVISORY COUNCILS A3 Domestic Financial Statistics A44 Domestic Nonfinancial Statistics A117 FEDERAL RESERVE BANKS, A52 International Statistics BRANCHES, AND OFFICES A67 Special Tables A118 FEDERAL RESERVE BOARD A113 GUIDE TO TABULAR PRESENTATION PUBLICATIONS AND STATISTICAL RELEASES A120 INDEX TO STATISTICAL TABLES A114 BOARD OF GOVERNORS AND STAFF A122 MAP OF FEDERAL RESERVE SYSTEM Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis The Impact of Rising Oil Prices on the Major Foreign Industrial Countries This article was prepared by Ronald A. Johnson, from early 1974 to 1978, and subsequently spurted of the Board's World Payments and Economic to more than $30 a barrel by mid-1980 (see chart Activity Section, Division of International Fi- 1). By contrast, the relative price of oil (that is, nance. the nominal price of oil relative to an average of prices of export goods in the six major foreign The surge in the world price of oil in 1979-80 led industrial countries) after rising sharply in 1973- to a strong swing toward deficit in the current- 74, fell steadily from 1974 to 1978. Moreover, the account balances of the six major foreign indus- relative price has increased less, in percentage trial economies. The recent rapid rise in the price terms, in 1979-80 than it did in 1973-74. of oil also contributed to the slowing of economic The increase in the value of oil imports reflects activity beginning in the second quarter of this the change not only in the nominal price, but also year and the acceleration of inflation from the in the volume of oil imports. As chart 2 shows, second half of 1979 through the first half of 1980 the volume of oil imports for all but two of the in those countries. major foreign countries was roughly the same in Several other factors help to account for the 1978-79 as it was in 1973-74. The exceptions current economic situation of the major foreign were Canada, whose net oil imports rose but industrial economies—Canada, France, Germa- most of whose domestic oil needs are met by do- ny, Italy, Japan, and the United Kingdom. These mestic production, and the United Kingdom, factors include most notably the stance of gov- whose net imports have declined since 1973 as ernment policies and the response by market par- domestic production increased. ticipants to the higher price of oil. Differences in these factors explain why the impact on growth 1. Nominal and relative oil prices and on inflation of the recent oil-price increases has not been so severe as that following the sharp 1972*= 100 rise in price in 1973. This article provides a brief characterization of the 1979-80 oil-price "shock" and of the other factors affecting economic developments in the six major foreign industrial countries, and de- scribes the impact of the oil-price increases on the current-account positions, real expenditure and output, and inflation of these six countries. THE NATURE OF RECENT OIL-PRICE INCREASES Nominal price is the average quarterly OPEC price in dollars, The dollar price of oil has more than doubled adjusted for spot market sales. Relative price is the nominal dollar since the end of 1978. The nominal dollar price of price of oil divided by the unweighted average export price index for the six major foreign industrial countries. The relative price of oil will oil increased almost 300 percent from the third dififer among countries depending on the rate of the appreciation or quarter of 1973 to early 1974, rose only slightly depreciation of their currencies with respect to the U.S. dollar. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 818 Federal Reserve Bulletin • February 1980 2. Volume of net oil imports declined relative to GNP. The reduction in this ratio stemmed primarily from the reaction of en- ergy users in these five countries to the 1973-74 runup in the price of oil and from an increase in the supply of energy in some countries, notably from North Sea oil. The ratio of the oil bill to GNP represents the direct income transfers from oil-importing to oil- exporting countries. Thus the increases in these ratios in 1979 and 1980 for France, Germany, Italy, and Japan have reflected the expansion in income transfers associated with the recent round of increases in the world price of oil. The total income loss due to the rise in the price of oil also reflects a loss in real output, which, in turn, results in part from the deflationary impact of a reduction in real expenditures and in part from the distortions of resource allocations occasion- 1974 1976 1978 1980 ed by an increase in the relative price of an im- Net oil import volumes are the differences between crude and prod- uct imports and crude and product exports. The four countries are portant factor of production. France, Germany, Italy, and Japan. Data from the Central Intelligence If the direct income transfer raises OPEC sav- Agency, International Energy Statistical Review, and staff estimates. ing more than it reduces saving in the oil-import- ing countries, and if the losses in income of non- While changes in the value of net oil imports OPEC nations cause them to lower their demands are reflected in swings in current-account posi- for the exports of the major industrial countries, tions, changes in the oil bill scaled by the gross then total real expenditures in these countries national product are a better measure of the will fall as a result of the rise in oil prices. The overall impact of oil on the countries that import resource-allocation effect generates an output it. This measure is reported in table 1. (The cal- loss if firms cannot fully pass on their increased culation of the ratio, with a qualification for the costs to consumers in the form of higher prices United Kingdom, is detailed in the note to the for end products. This effect can be exacerbated table.) if increases in oil prices trigger inflationary wage From 1974 to 1978 the oil-import bill of the ma- demands and if structural or technological con- jor foreign industrial economies except Canada straints prevent immediate factor substitutions.
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