47

The two “oil shocks” of the 1970s cut French GDP growth. Since that period, sudden oil-price increases have been viewed as a major cause of economic slowdown. We estimate VAR models and Markov-Switching models to evaluate the impact of oil-price rises on French growth. Our results indicate a breakdown of the link between oil prices and economic activity in the early 1980s. Over the period 1980-2006, our estimates show a slight negative effect of oil-price increases only in low-growth phases. Our models also point to slacker foreign demand after an oil-price rise – a phenomenon that indirectly affects GDP growth.