Abstract

This paper shows that the two oil shocks that occurred in 1974-85 and 2003-15 inflicted sizable damage to total factor productivity (TFP) in France and Germany. These are resource-poor economies whose firms are importing most of their inputs of extractive commodities. The real prices they pay for them impact directly on their value added and hence on GDP in aggregate. We single out the price of crude oil as the most important and volatile of this set of highly correlated prices. This real price depends both on the world commodity market and on the exchange rates between the US dollar and the relevant European currencies, themselves determined by monetary policy in the US and in Europe. The significance of this mechanism is confirmed econometrically, and its quantitative implications are assessed. On average, these countries have lost more than 1% of potential TFP during these oil shocks, Germany being affected more severely than France. Historical analysis shows that episodes of US dollar appreciation have significant impacts on French and German TFP via this channel.

JEL codes