Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v10y2018i8p2792-d162355.html
   My bibliography  Save this article

The Causal Nexus between Oil Prices, Interest Rates, and Unemployment in Norway Using Wavelet Methods

Author

Listed:
  • Hyunjoo Kim Karlsson

    (Department of Economics and Statistics, Linnaeus University, P.O. Box 451, 351 95 Växjö, Sweden)

  • Yushu Li

    (Department of Mathematics, University of Bergen, P.O. Box 7803, 5020 Bergen, Norway)

  • Ghazi Shukur

    (Department of Economics and Statistics, Linnaeus University, P.O. Box 451, 351 95 Växjö, Sweden
    Deceased.)

Abstract
This paper applies wavelet multi-resolution analysis (MRA), combined with two types of causality tests, to investigate causal relationships between three variables: real oil price, real interest rate, and unemployment in Norway. Impulse response functions were also utilised to examine effects of innovation in one variable on the other variables. We found that causal relations between the variables tend to be stronger as the wavelet time scale increases; specifically, there were no causal relationships between the variables at the lowest time scales of one to three months. A causal relationship between unemployment rate and interest rate was observed during the period of two quarters to two years, during which time a feedback mechanism was also detected between unemployment and interest rate. Causal relationships between oil price and both interest rate and unemployment were observed at the longest time scale of eight quarters. In conjunction with Granger causality analysis, impulse response functions showed that unemployment rates in Norway respond negatively to oil price shocks around two years after the shocks occur. As an oil exporting country, increases (or decreases) in oil prices reduce (or increase) unemployment in Norway under a time horizon of about two years; previous studies focused on oil importing economies have generally found the inverse to be true. Unlike most studies in this field, we decomposed the implicit aggregation for all time scales by applying MRA with a focus on the Norwegian economy. Thus, one main contribution of this paper is that we unveil and systematically distinguish the nature of the time-scale dependent relationship between real oil price, real interest rate, and unemployment using wavelet decomposition.

Suggested Citation

  • Hyunjoo Kim Karlsson & Yushu Li & Ghazi Shukur, 2018. "The Causal Nexus between Oil Prices, Interest Rates, and Unemployment in Norway Using Wavelet Methods," Sustainability, MDPI, vol. 10(8), pages 1-15, August.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:8:p:2792-:d:162355
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/10/8/2792/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/10/8/2792/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Peter Ferderer, J., 1996. "Oil price volatility and the macroeconomy," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 1-26.
    3. 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.
    4. Jorgenson, Dale W, 1984. "The Role of Energy in Productivity Growth," American Economic Review, American Economic Association, vol. 74(2), pages 26-30, May.
    5. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 195-213, October.
    6. Loungani, Prakash, 1986. "Oil Price Shocks and the Dispersion Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 536-539, August.
    7. Michael Bruno & Jeffrey Sachs, 1982. "Input Price Shocks and the Slowdown in Economic Growth: The Case of U.K.Manufacturing," NBER Working Papers 0851, National Bureau of Economic Research, Inc.
    8. Pindyck, Robert S & Rotemberg, Julio J, 1983. "Dynamic Factor Demands and the Effects of Energy Price Shocks," American Economic Review, American Economic Association, vol. 73(5), pages 1066-1079, December.
    9. Kim, In-Moo & Loungani, Prakash, 1992. "The role of energy in real business cycle models," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 173-189, April.
    10. Knut Anton Mork & Oystein Olsen & Hans Terje Mysen, 1994. "Macroeconomic Responses to Oil Price Increases and Decreases in Seven OECD Countries," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 19-36.
    11. Keane, Michael P & Prasad, Eswar S, 1996. "The Employment and Wage Effects of Oil Price Changes: A Sectoral Analysis," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 389-400, August.
    12. 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 740-744, June.
    13. 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.
    14. Dogrul, H. Günsel & Soytas, Ugur, 2010. "Relationship between oil prices, interest rate, and unemployment: Evidence from an emerging market," Energy Economics, Elsevier, vol. 32(6), pages 1523-1528, November.
    15. Hooker, Mark A., 1996. "This is what happened to the oil price-macroeconomy relationship: Reply," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 221-222, October.
    16. Yushu Li & Ghazi Shukur, 2013. "Testing for Unit Roots in Panel Data Using a Wavelet Ratio Method," Computational Economics, Springer;Society for Computational Economics, vol. 41(1), pages 59-69, January.
    17. Davis, Steven J. & Haltiwanger, John, 2001. "Sectoral job creation and destruction responses to oil price changes," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 465-512, December.
    18. Uri, Noel D., 1996. "Crude oil price volatility and unemployment in the United States," Energy, Elsevier, vol. 21(1), pages 29-38.
    19. 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.
    20. Ramsey, James B. & Lampart, Camille, 1998. "Decomposition Of Economic Relationships By Timescale Using Wavelets," Macroeconomic Dynamics, Cambridge University Press, vol. 2(1), pages 49-71, March.
    21. 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 459-484, June.
    22. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    23. Michael Bruno & Jeffrey Sachs, 1982. "Input Price Shocks and the Slowdown in Economic Growth: The Case of U.K. Manufacturing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(5), pages 679-705.
    24. Gisser, Micha & Goodwin, Thomas H, 1986. "Crude Oil and the Macroeconomy: Tests of Some Popular Notions: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 95-103, February.
    25. Noel D. Uri, 1996. "The Impact of Crude Oil Price Volatility on Agricultural Employment in the United States," Energy & Environment, , vol. 7(1), pages 57-74, February.
    26. Rotemberg, Julio J & Woodford, Michael, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 550-577, November.
    27. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
    28. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    29. Lutz Kilian, 2008. "A Comparison of the Effects of Exogenous Oil Supply Shocks on Output and Inflation in the G7 Countries," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 78-121, March.
    30. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    31. Prachowny,Martin F. J., 1986. "Money in the Macroeconomy," Cambridge Books, Cambridge University Press, number 9780521315944.
    32. Gençay, Ramazan & Gençay, Ramazan & Selçuk, Faruk & Whitcher, Brandon J., 2001. "An Introduction to Wavelets and Other Filtering Methods in Finance and Economics," Elsevier Monographs, Elsevier, edition 1, number 9780122796708.
    33. Lee, Kiseok & Ni, Shawn, 2002. "On the dynamic effects of oil price shocks: a study using industry level data," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 823-852, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Kai-Hua & Liu, Lu & Li, Xin & Oana-Ramona, Lobonţ, 2022. "Do oil price shocks drive unemployment? Evidence from Russia and Canada," Energy, Elsevier, vol. 253(C).
    2. Yating, Yang & Mughal, Nafeesa & Wen, Jun & Thi Ngan, Truong & Ramirez-Asis, Edwin & Maneengam, Apichit, 2022. "Economic performance and natural resources commodity prices volatility: Evidence from global data," Resources Policy, Elsevier, vol. 78(C).
    3. Iman Cheratian & Mohammad Reza Farzanegan & Saleh Goltabar, 2019. "Oil Price Shocks and Unemployment Rate: New Evidence from the MENA Region," MAGKS Papers on Economics 201931, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    4. Zheng, ShiYong & Li, Xiao & Li, Juan & Li, Biqing & Hafeez, Muhammad, 2023. "Assessing the COVID-19 impact on economy, health and natural resource prices: An evidence from selected Asian economies," Resources Policy, Elsevier, vol. 87(PB).
    5. Cui, Lianbiao & Weng, Shimei & Kirikkaleli, Dervis & Bashir, Muhammad Adnan & Rjoub, Husam & Zhou, Yuanxiang, 2021. "Exploring the role of natural resources, natural gas and oil production for economic growth of China," Resources Policy, Elsevier, vol. 74(C).
    6. Ayhan Orhan & Dervis Kirikkaleli & Fatih Ayhan, 2019. "Analysis of Wavelet Coherence: Service Sector Index and Economic Growth in an Emerging Market," Sustainability, MDPI, vol. 11(23), pages 1-12, November.
    7. Kocaarslan, Baris & Soytas, Mehmet Ali & Soytas, Ugur, 2020. "The asymmetric impact of oil prices, interest rates and oil price uncertainty on unemployment in the US," Energy Economics, Elsevier, vol. 86(C).
    8. Sun, Li & Wang, Yang, 2021. "Global economic performance and natural resources commodity prices volatility: Evidence from pre and post COVID-19 era," Resources Policy, Elsevier, vol. 74(C).
    9. Zhou, Shuai & Qian, Yudan & Farmanesh, Panteha, 2022. "The economic cost of environmental laws: Volatility transmission mechanism and remedies," Resources Policy, Elsevier, vol. 79(C).
    10. Zhang, Xi-Xi & Liu, Lu, 2020. "The time-varying causal relationship between oil price and unemployment: Evidence from the U.S. and China (EGY 118745)," Energy, Elsevier, vol. 212(C).
    11. Naixia Mou & Yanxin Xie & Tengfei Yang & Hengcai Zhang & Yoo Ri Kim, 2019. "The Impact of Slumping Oil Price on the Situation of Tanker Shipping along the Maritime Silk Road," Sustainability, MDPI, vol. 11(17), pages 1-16, September.
    12. Tan, Yan & Uprasen, Utai, 2023. "Asymmetric effects of oil price shocks on income inequality in ASEAN countries," Energy Economics, Elsevier, vol. 126(C).
    13. Guo, Shanwen & Wang, Qibin & Hordofa, Tolassa Temesgen & Kaur, Prabjot & Nguyen, Ngoc Quynh & Maneengam, Apichit, 2022. "Does COVID-19 pandemic cause natural resources commodity prices volatility? Empirical evidence from China," Resources Policy, Elsevier, vol. 77(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    2. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    3. Gbatu, Abimelech Paye & Wang, Zhen & Wesseh, Presley K. & Tutdel, Isaac Yak Repha, 2017. "The impacts of oil price shocks on small oil-importing economies: Time series evidence for Liberia," Energy, Elsevier, vol. 139(C), pages 975-990.
    4. 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.
    5. Brown, Stephen P. A. & Yucel, Mine K., 2002. "Energy prices and aggregate economic activity: an interpretative survey," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 193-208.
    6. James D. Hamilton, 2013. "Oil prices, exhaustible resources and economic growth," Chapters, in: Roger Fouquet (ed.), Handbook on Energy and Climate Change, chapter 1, pages 29-63, Edward Elgar Publishing.
    7. Aliyu, Shehu Usman Rano, 2009. "Oil Price Shocks and the Macroeconomy of Nigeria: A Non-linear Approach," MPRA Paper 18726, University Library of Munich, Germany, revised 16 Nov 2009.
    8. Muhammad Arshad Khan & Ayaz Ahmed, 2011. "Macroeconomic Effects of Global Food and Oil Price Shocks to the Pakistan Economy: A Structural Vector Autoregressive (SVAR) Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 50(4), pages 491-511.
    9. Dong Kim, 2012. "What is an oil shock? Panel data evidence," Empirical Economics, Springer, vol. 43(1), pages 121-143, August.
    10. Naser, Hanan, 2014. "On the cointegration and causality between Oil market, Nuclear Energy Consumption, and Economic Growth: Evidence from Developed Countries," MPRA Paper 65252, University Library of Munich, Germany, revised 25 Mar 2015.
    11. Awerbuch, Shimon & Sauter, Raphael, 2006. "Exploiting the oil-GDP effect to support renewables deployment," Energy Policy, Elsevier, vol. 34(17), pages 2805-2819, November.
    12. Filis, George & Degiannakis, Stavros & Floros, Christos, 2011. "Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 152-164, June.
    13. Lizardo, Radhamés A. & Mollick, André V., 2010. "Oil price fluctuations and U.S. dollar exchange rates," Energy Economics, Elsevier, vol. 32(2), pages 399-408, March.
    14. Cunado, J. & Perez de Gracia, F., 2005. "Oil prices, economic activity and inflation: evidence for some Asian countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(1), pages 65-83, February.
    15. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
    16. Alom, Fardous, 2011. "Economic Effects of Oil and Food Price Shocks in Asia and Pacific Countries: An Application of SVAR Model," 2011 Conference, August 25-26, 2011, Nelson, New Zealand 115346, New Zealand Agricultural and Resource Economics Society.
    17. Kandemir Kocaaslan, Ozge, 2019. "Oil price uncertainty and unemployment," Energy Economics, Elsevier, vol. 81(C), pages 577-583.
    18. repec:bla:opecrv:v:32:y:2008:i:4:p:343-380 is not listed on IDEAS
    19. Jaime Casassus & Freddy Higuera, 2011. "Stock Return Predictability and Oil Prices," Documentos de Trabajo 406, Instituto de Economia. Pontificia Universidad Católica de Chile..
    20. Ana Gómez-Loscos & Mar𨀠 Dolores Gadea & Antonio Montañ鳠, 2012. "Economic growth, inflation and oil shocks: are the 1970s coming back?," Applied Economics, Taylor & Francis Journals, vol. 44(35), pages 4575-4589, December.
    21. Du, Limin & Yanan, He & Wei, Chu, 2010. "The relationship between oil price shocks and China's macro-economy: An empirical analysis," Energy Policy, Elsevier, vol. 38(8), pages 4142-4151, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:10:y:2018:i:8:p:2792-:d:162355. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.