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Oil price uncertainty and unemployment

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  • Kandemir Kocaaslan, Ozge

Abstract

In this study, we empirically search the effects of oil price uncertainty and oil price shocks on U.S. unemployment rate using a GARCH-in-mean VAR model for the period 1974:q2–2017:q4. Based on our findings, we show that oil price uncertainty significantly increases unemployment rate in the U.S. economy. Likewise, our impulse-response analysis affirms that a positive oil price shock increases unemployment while the response of unemployment to a negative oil price shock is negative. Moreover, we reveal that unemployment rate reacts to positive and negative shocks asymmetrically. More specifically, the response of unemployment to negative oil price shocks is negative and slighter in size. Besides, oil price uncertainty is found to magnify the rise in the U.S. unemployment rate. These findings are in keeping with the real options theory which reveals that the uncertainty about goods' prices leads firms to postpone or abandon their production and investment and they seem to be robust to the use of different real oil price measures.

Suggested Citation

  • Kandemir Kocaaslan, Ozge, 2019. "Oil price uncertainty and unemployment," Energy Economics, Elsevier, vol. 81(C), pages 577-583.
    • Handle: RePEc:eee:eneeco:v:81:y:2019:i:c:p:577-583
    DOI: 10.1016/j.eneco.2019.04.021
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    More about this item

    Keywords

    Unemployment; Oil price volatility; Bivariate GARCH-in-mean VAR;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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