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The effects of oil price shocks on job reallocation

Ana María Herrera and Mohamad Karaki

Journal of Economic Dynamics and Control, 2015, vol. 61, issue C, 95-113

Abstract: We investigate the effect of oil price innovations on U.S. manufacturing job flows using a simultaneous equation model that nests symmetric and asymmetric responses. We find no evidence of asymmetry in the response of job flows to positive and negative oil price innovations. We then inquire whether firms, when facing positive shocks, shed jobs faster than they create jobs. We show that positive innovations lead to a decline in net employment and an increase in job reallocation, possibly due to search and matching issues. Yet, the latter effect becomes statistically insignificant when we control for data mining. We demonstrate that the cumulative one-year effect of oil price shocks on job creation and destruction was smaller during the Great Moderation, but it was larger for gross job reallocation. These variations were caused by a change in the transmission channel and not by smaller oil price shocks.

Keywords: Oil prices; Job flows; Job reallocation; Asymmetric responses (search for similar items in EconPapers)
JEL-codes: E24 E32 Q43 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1016/j.jedc.2015.08.006

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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