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

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  • Spyros Andreopoulos

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.

Suggested Citation

  • Spyros Andreopoulos, 2006. "The real interest rate, the real oil price, and US unemployment revisited," Bristol Economics Discussion Papers 06/592, School of Economics, University of Bristol, UK.
    • Handle: RePEc:bri:uobdis:06/592
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    References listed on IDEAS

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    More about this item

    Keywords

    Unemployment; Real Interest Rate; Oil Price; Granger Causality; US Recessions; Markov Chain; Regime Switching; Structural Instability;
    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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