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Unemployment Equilibria and Input Prices: Theory and Evidence from the United States

Author

Listed:
  • Carruth, A.A.

    (University of Kent)

  • Hooker, M.A.

    (Federal Reserve Board, USA)

  • Oswald, A.J.

    (Warwick University)

Abstract

The paper develops an efficiency-wage model, where 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 post-war movements in the rate of US 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 which followed.

Suggested Citation

  • Carruth, A.A. & Hooker, M.A. & Oswald, A.J., 1998. "Unemployment Equilibria and Input Prices: Theory and Evidence from the United States," The Warwick Economics Research Paper Series (TWERPS) 496, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:496
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    WAGES ; UNEMPLOYMENT;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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