IMPACT OF HIGHER OIL PRICES ON OECD GROWTH AND INFLATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000502140001-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 1
• Document Creation Date: December 22, 2016
• Document Release Date: July 13, 2010
• Sequence Number: 1
• Publication Date: October 25, 1983
• Content Type: MEMO

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Sanitized Copy Approved for Release 2010/07/13: CIA-RDP85T00287R000502140001-1
UVIYI IUClY I t~,_
25 October, 1983
MEMORANDUM FOR: Mr. Paul Balabanis
Director, Planning and Economic Analysis Staff
Department of State
Office of European Analysis
a ytic Support Group
SUBJECT Impact of Higher Oil Prices on OECD Growth
and Inflation
1. Per your telephoned request on 24 October 1983 we are enclosing
some simulation results showing the estimated impact on the OECD of a
large increase ir. the price of oil. These simulation results, derived
from our Linked Policy Impact Model (LPIM) should be considered
tentative, first because the oil price increase simulated is so large
(about $70 dollars) as to be beyond the bounds of experience used to
estimate the model, and second, given the magnitude of the increase our
assumption of no change in government policies is not very realistic.
2. In these simulations, the price of oil is assumed to rise from
$29.00 in 1983 (and 1984) to $98.00 in 1984--due to a hypothetical net
supply shortfall of roughly nine million barrels a day--and remain at
that price in nominal terms through 1986. This price increase causes
the aggregate OECD real GNP growth rate in 1984 to drop from a baseline
rate of 3.4 per cent in 1984 to -0.9 per cent. The average rate of
inflation in the OECD rises almost 10 percentage points, and the
aggregate OECD ccrrent account balance worsens by over $110 billion.
3. In the attached tables the results from simulation "BASE1003"
are the baseline projections which are a combination of model forecasts
and analyst judgments. In the simulations "HIGHOIL" the world price of
traded oil is increased while all other exogenous and policy variables
are held unchanged.
4. We are now working on a refinement of this analysis which we
would be happy to make available to you when it is completed. If we
can be of assistance in providing other simulation analysis, please
F_..1 c___ ~_ __~~
Distribution:
Orig - Addressee
4 - IMC/CB
1 - EURA
2 - EURA Production
1 - EURA/EI
2 - EURA/EI/EI
DDI/EURA/EI/EI 250ct.83)
EUR M 83-10255
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Sanitized Copy Approved for Release 2010/07/13: CIA-RDP85T00287R000502140001-1