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

  • Carruth,a.
  • Hooker, N.
  • Oswald,A.

The paper develops an efficiency-wage model where input prices affect the equlibrium 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 U.S. joblessnss. The equations do well in forecasting unemployment many out-of-sample, and provide evidence that the oil price spike associated with Iraq's invasion of Kuweit appears to be a component of the "mystery" recession which followed.

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Paper provided by Centre for Economic Performance & Institute of Economics in its series Papers with number 22.

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Length: 20 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:fth:cepies:22
Contact details of provider: Postal: United Kingdom; Centre for Economic Performance & Institute of Economics and Statistics, Oxford University. Manor Road. Oxford OX1 3Ul
Web page: http://www.economics.ox.ac.uk/
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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, vol. 96(3), pages 593-617, June.
  2. Nickell, Stephen J, 1990. "Unemployment: A Survey," Economic Journal, Royal Economic Society, vol. 100(401), pages 391-439, June.
  3. In-Moo Kim & Prakash Loungani, 1991. "The role of energy in real business cycle models," Working Paper Series, Macroeconomic Issues 91-6, Federal Reserve Bank of Chicago.
  4. Dale W. Jorgenson, 1984. "The Role of Energy in Productivity Growth," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 11-26.
  5. C Bean, 1992. "European Unemployment: A Survey," CEP Discussion Papers dp0071, Centre for Economic Performance, LSE.
  6. Burbidge, John & Harrison, Alan, 1984. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 459-84, June.
  7. 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.
  8. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
  9. 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, vol. 97(3), pages 740-44, June.
  10. Michael P. Keane & Eswar Prasad, 1995. "The Employment and Wage Effects of Oil Price Changes; A Sectoral Analysis," IMF Working Papers 95/37, International Monetary Fund.
  11. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
  12. Peter Ferderer, J., 1996. "Oil price volatility and the macroeconomy," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 1-26.
  13. 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) 475, University of Warwick, Department of Economics.
  14. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 195-213, October.
  15. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  16. 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, vol. 49(5), pages 679-705, Special I.
  17. 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, vol. 14(1), pages 9-93, January.
  18. 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, vol. 0(Number 4), pages 39-56.
  19. Jorgenson, Dale W, 1984. "The Role of Energy in Productivity Growth," American Economic Review, American Economic Association, vol. 74(2), pages 26-30, May.
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