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Unemployment Equilibria And Input Prices: Theory And Evidence From The United States

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  • Alan A. Carruth
  • Mark A. Hooker
  • Andrew J. Oswald

Abstract

The paper develops an efficiency-wage model in which input prices affect the equilibrium rate of unemployment. We show that a simple framework based on only two prices (the real price of oil and the real rate of interest) is able to explain the main postwar movements in the rate of U.S. joblessness. The equations do well in forecasting unemployment many years out of sample, and provide evidence that the oil-price spike associated with Iraq's invasion of Kuwait appears to be a component of the "mystery" recession that followed. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog

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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 80 (1998)
Issue (Month): 4 (November)
Pages: 621-628

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Handle: RePEc:tpr:restat:v:80:y:1998:i:4:p:621-628

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  1. Hamilton, James D, 1988. "A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(3), pages 593-617, June.
  2. Bruno, Michael & Sachs, Jeffrey, 1982. "Input Price Shocks and the Slowdown in Economic Growth: The Case of U.K. Manufacturing," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(5), pages 679-705, Special I.
  3. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 38(2), pages 195-213, October.
  4. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 32(2), pages 573-619, June.
  5. Peter Ferderer, J., 1996. "Oil price volatility and the macroeconomy," Journal of Macroeconomics, Elsevier, Elsevier, vol. 18(1), pages 1-26.
  6. Oswald Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations : Part I," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 475, University of Warwick, Department of Economics.
  7. Kim, In-Moo & Loungani, Prakash, 1992. "The role of energy in real business cycle models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 29(2), pages 173-189, April.
  8. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 228-48, April.
  9. Dale W. Jorgenson, 1984. "The Role of Energy in Productivity Growth," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 3), pages 11-26.
  10. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  11. Mork, Knut Anton, 1989. "Oil and Macroeconomy When Prices Go Up and Down: An Extension of Hamilton's Results," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(3), pages 740-44, June.
  12. John Burbidge & Alan Harrison, 1982. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," School of Economics Working Papers, University of Adelaide, School of Economics 1982-01, University of Adelaide, School of Economics.
  13. Kiseok Lee & Shawn Ni & Ronald A. Ratti, 1995. "Oil Shocks and the Macroeconomy: The Role of Price Variability," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 39-56.
  14. Keane, Michael P & Prasad, Eswar S, 1996. "The Employment and Wage Effects of Oil Price Changes: A Sectoral Analysis," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 78(3), pages 389-400, August.
  15. Nickell, Stephen J, 1990. "Unemployment: A Survey," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(401), pages 391-439, June.
  16. A Carruth & M Hooker & A Oswald, 1994. "Unemployment, Oil Prices and the Real Interest Rate: Evidence from Canada and the UK," CEP Discussion Papers, Centre for Economic Performance, LSE dp0188, Centre for Economic Performance, LSE.
  17. Jorgenson, Dale W, 1984. "The Role of Energy in Productivity Growth," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 26-30, May.
  18. Rasche, Robert H. & Tatom, John A., 1981. "Energy price shocks, aggregate supply and monetary policy: The theory and the international evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 14(1), pages 9-93, January.
  19. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, Elsevier, vol. 38(2), pages 215-220, October.
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