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Investment, Current Account, and the Long Swings of Unemployment

Hian Teck Hoon, Margarita Katsimi and Gylfi Zoega
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Hian Teck Hoon: Singapore Management University
Margarita Katsimi: Athens University of Economics and Business

No 1810, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: We estimate the relationship between investment and unemployment over the time period 1960-2015 in 20 OECD countries. While neoclassical growth theory typically assumes full employment – with no effect of investment on unemployment – we find that over our sample period covering more than five decades, a statistically significant negative relationship does exist: when investment fell, unemployment increased. When the time period is broken down into two sub-periods to take account of the Great Recession, we find that the estimated coefficient of investment is slightly smaller when the period 2001-2015 is added to the 1960-2000 period. We also find a positive effect of the current account surplus on unemployment that very likely works through investment. A non-monetary model shows how an increase in policy uncertainty that sharply contracts investment and raises unemployment can lead to an increase in current account surplus.

Keywords: Long swings of unemployment; investment; current account; Great Recession. (search for similar items in EconPapers)
JEL-codes: E10 E22 E24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-his, nep-mac and nep-sea
Date: 2018-09
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