Effect on unemployment, Macroeconomics

Assignment Help:

From the lower left graph of Fig. it can be seen that there is a time lag associated with an oil price shock and its subsequent effect on unemployment. The results show that for the following year there is no real diversion from the trend and therefore in the short term, unemployment is not significantly effected by an oil price shock. However throughout the medium term and into the long term the unemployment rate is shown to be up to 0.5% higher as a result of the oil price shock. The trend does not stabilise throughout the five year period and therefore it can be drawn that from an oil price shock there is a significant lasting effect on the unemployment rate in the UK.

Finally from the top right graph from Fig. exchange rates seem to follow economic theory. Mankiw (2010) explains that a reduction in the net exports of an economy will result in a depreciation of that economy's exchange rate. Whilst the graph shows that the exchange rates are initially above the normal level following an oil price shock, towards the end of the short term, throughout the medium term and into the long term the real exchange rate has depreciated by two basis points and does not revert back to the original trend throughout the period.

In summary, oil price shocks do draw out great responses from three of the five macroeconomic indicators tested. GDP, inflation and interest rates were all proven to be Granger caused by oil prices indicating that there is a significant relationship between them. In this paper, the results are negative for UK economic performance. The Cholesky impulse response functions show long periods of economic recession and fluctuating levels of inflation for the following four to five years post oil shock. In addition to this, unemployment and exchange rates are also both negatively impacted by a shock in oil prices. Like interest rates, these impacts appear long lasting and do not revert back to their previous trend throughout the five year period. Therefore following a shock in oil prices this model shows that the overall economic performance of the UK will suffer greatly throughout the short and medium term, and will stabilise only in the long term although the economy may be left with a high level of long term unemployment.


Related Discussions:- Effect on unemployment

IS-lm model, Derive the following equilibrium for the IS-LM model:

Derive the following equilibrium for the IS-LM model:

How to calculate inflation rate, Assume the residents of an economy spend a...

Assume the residents of an economy spend all of their income on cauliflower, broccoli and carrots. In 2003 they buy100 heads of cauliflowers for Rs. 200; 50 bunch of broccoli f

Aggregate demand and aggregate supply, Find one or more articles in the wal...

Find one or more articles in the wall street Journal or other business publications that describe changes in fiscal or monetary policies in the United States. Discuss how these pol

Health care and income transfers, During the past five decades, there has b...

During the past five decades, there has been a shift in the composition of the federal budget toward more spending on income transfers and health care and a smaller share for natio

Increase in demand, Changes in demand-Baby diapers and retirement villagesO...

Changes in demand-Baby diapers and retirement villagesOther things equal, an increase in the number of buyers for a product or service will increase -demand. Baby diapers and retir

Change in the dependent variable, All other things being held constant, wha...

All other things being held constant, what is the change in the dependent variable for a unit change in the first independent variable for the multiple regression equation: ? = 5.2

Demand, Demand: Demand is quantity of a good buyer who wishes to purcha...

Demand: Demand is quantity of a good buyer who wishes to purchase at each conceivable price. The law of demand explains us that if the price of certain commodity increases,

Income and substitution effects of a price change, Income and Substitution ...

Income and Substitution Effects of a Price Change Indifference curve analysis can be used to separate the income effect (IE) from substitution effect (SE). This is shown in Fig

Last deposit if your saving account, You make a monthly deposit of $1,000 i...

You make a monthly deposit of $1,000 into a saving account for the next 10 years. How much can you withdraw immediately after your last deposit if your saving account pays 6% per y

Gpd., the whole explanation of dpd

the whole explanation of dpd

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd