Oil price uncertainty and unemployment |
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| Affiliation: | 1. School of Business, Central South University, Changsha 410083, China;2. School of Architecture, Hunan University, Changsha 410082, China;3. Periodical Society, Central South University of Forestry and Technology, Changsha 410004, China;4. Supply Chain and Logistics Optimization Research Centre, Faculty of Engineering, University of Windsor, Windsor, ON, Canada;5. Centre for Computational Finance and Economic Agents, University of Essex, Colchester CO4 3SQ, UK;1. College of Economics and Academy of Financial Research, Zhejiang University, Hangzhou 310027, China;2. College of Economics, Zhejiang University, Hangzhou 310027, China;1. Department of Economics and Finance, Brunel University, London, UK;2. CESifo, Munich, Germany;3. DIW Berlin, Germany;4. Centre for Applied Macroeconomic Analysis (CAMA), Canberra, Australia |
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| 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. |
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