The real interest rate, the real oil price, and US unemployment revisited

Spyros Andreopoulos ()

Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK

Abstract: The time series evidence on the relationship between unemployment and the real prices of capital and energy is re-examined for US data. In contrast to previous studies, results indicate that the real interest rate matters little, if at all, for equilibrium unemployment. Using a Markov Switching vector autoregressive method proposed by Psaradakis, Ravn, Sola (2005) [JApplEconometrics 20(5), pp. 665-683] to investigate time-varying Granger causality, the paper shows that the real rate helps forecast unemployment during NBER expansions only. Granger causality from the oil price to unemployment occurs in recessions. The results support the view that the price of crude induces at least some recessions, while not being a regular feature of the US business cycle.

Keywords: Unemployment; Real Interest Rate; Oil Price; Granger Causality; US Recessions; Markov Chain; Regime Switching; Structural Instability (search for similar items in EconPapers)
JEL-codes: C32 E24 E32 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2006-11
New Economics Papers: this item is included in nep-ene and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bri:uobdis:06/592

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