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Unemployment, Oil Prices and the Real Interest Rate: Evidence from Canada and the UK

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  • A Carruth
  • M Hooker
  • A Oswald

Abstract

There is still little agreement about what caused the large movement in unemployment in the industrialized nations in the 1970s and 1980s. This paper constructs a simple model in which the equilibrium rate of unemployment depends upon the real rate of interest and the real price of oil. When confronted with data from Canada and the UK, there is some support for the model's predictions. Granger-casualty tests and regression results suggest that the real oil price is especially important. If a dynamic model is estimated up to the start of the 1980s, it successfully predicts (out of a sample) the behaviour of unemployment over the ensuing period. Nevertheless, an unexplained secular trend in unemployment is visible in the data.

Suggested Citation

  • A Carruth & M Hooker & A Oswald, 1994. "Unemployment, Oil Prices and the Real Interest Rate: Evidence from Canada and the UK," CEP Discussion Papers dp0188, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0188
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    Citations

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    Cited by:

    1. Stephen S. Poloz, "undated". "The Causes of Unemployment in Canada: A Review of the Evidence," Staff Working Papers 94-11, Bank of Canada.
    2. Vincenzo Cassino & Richard Thornton, 2002. "Do changes in structural factors explain movements in the equilibrium rate of unemployment?," Bank of England working papers 153, Bank of England.
    3. Stephen S. Poloz, 1995. "The Causes of Unemployment in Canada: A Review of the Evidence," Macroeconomics 9502002, University Library of Munich, Germany.
    4. George Kapetanios & Elias Tzavalis, 2004. "The Impact of Large Structural Shocks on Economic Relationships: Evidence from Oil Price Shocks," Working Papers 524, Queen Mary University of London, School of Economics and Finance.
    5. Robert Amano & Tony S. Wirjanto, "undated". "An Empirical Investigation into Government Spending and Private Sector Behaviour," Staff Working Papers 94-8, Bank of Canada.
    6. Alan A. Carruth & Mark A. Hooker & Andrew J. Oswald, 1998. "Unemployment Equilibria And Input Prices: Theory And Evidence From The United States," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 621-628, November.
    7. Reynolds, Douglas B. & Kolodziej, Marek, 2008. "Former Soviet Union oil production and GDP decline: Granger causality and the multi-cycle Hubbert curve," Energy Economics, Elsevier, vol. 30(2), pages 271-289, March.
    8. Kamil Dybczak & David Vonka & Nico van der Windt, 2008. "The Effect of Oil Price Shocks on the Czech Economy," Working Papers 2008/5, Czech National Bank.
    9. Mark Hooker & Michael Knetter, 1994. "Unemployment Effects of Military Spending: Evidence from a Panel of States," NBER Working Papers 4889, National Bureau of Economic Research, Inc.
    10. Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-816, May.

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