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

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  • Spyros Andreopoulos

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    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.

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    File URL: http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp06592.pdf
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    Bibliographic Info

    Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 06/592.

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    Length: 47 pages
    Date of creation: Nov 2006
    Date of revision:
    Handle: RePEc:bri:uobdis:06/592

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    Keywords: Unemployment; Real Interest Rate; Oil Price; Granger Causality; US Recessions; Markov Chain; Regime Switching; Structural Instability;

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