A BEJM Topics article.

Abstract

Motivated by structural instability in the energy price – macroeconomy nexus, this paper revisits Granger causality between unemployment and real input prices, the real prices of energy (crude oil) and capital (real interest rate). Time varying Granger causality is investigated through application of the Markov Switching Vector Autoregression of Psaradakis, Ravn, and Sola [Journal of Applied Econometrics, 20(5), 665-683 (2005)]. The results show that the real price of oil helps forecast unemployment in recessions only, while the real interest rate does so exclusively in expansions. This finding is consistent with the hypothesis that oil prices have asymmetric effects on the economy. A further result is that oil, but not the real rate, is economically significant for unemployment in the long run solution of the model.

Submitted: August 26, 2007 · Accepted: October 28, 2008 · Published: March 6, 2009

Recommended Citation

Andreopoulos, Spyros (2009) "Oil Matters: Real Input Prices and U.S. Unemployment Revisited," The B.E. Journal of Macroeconomics: Vol. 9 : Iss. 1 (Topics), Article 9.
DOI: 10.2202/1935-1690.1632
Available at: http://www.bepress.com/bejm/vol9/iss1/art9