The Causal Nexus between Oil Prices, Interest Rates, and Unemployment in Norway Using Wavelet Methods
Abstract
:1. Introduction
2. Theory and Evidence
2.1. Theoretical Background
2.1.1. Transmission Channels
2.1.2. Time Horizons
2.2. Empirical Evidence
3. Preliminaries
3.1. Some Stylised Facts
3.2. Methodology and Estimation Results
3.2.1. Wavelet Decomposition
3.2.2. Toda–Yamamoto (TY) Procedure and Granger Causality Test
- (1)
- Identify maximal order of integration d of all the series. Augmented Dickey-Fuller (ADF) unit root tests based on the procedure in Enders [34] are applied in this identification.
- (2)
- Using the three original data in levels, a vector autoregressive model (VAR) model is built. Using certain selection criteria such as final prediction error (FPE), Akaike information criterion (AIC), or Schwarz information criterion (SIC), specify a well-behaved kth optimal lag order VAR in levels (not in the difference series).
- (3)
- Diagnose the VAR model by checking residual serial correlation applying Lagrange multiplier (LM)-test and ensure that all the inverse roots of the characteristic AR polynomial must lie inside the unit circle.
- (4)
- Finally, a Wald test is conducted on the first k parameters of augmented VAR (k + d) model as follows:
4. Estimation Results
4.1. Causality Test
4.2. Impulse Response Function
5. Conclusions and Policy Implications
Author Contributions
Funding
Conflicts of Interest
References
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From | To | S5 * | D5 | D4 | D3 | D2 + D1 |
---|---|---|---|---|---|---|
(Interpretations of the Wavelet Scale Notations above) | ||||||
32 Months and Longer | 16–32 Month (4–8 Quarter) Cycle | 8–16 Month (2–4 Quarter) Cycle | 4–8 Month (Around Two Quarters) Cycle | 1–3 Month (One Quarter) Cycle | ||
Oprice | IntR | 0.014 | 0.000 | 0.412 | 0.129 | 0.9566 |
Oprice | UnEmp | 0.083 | 0.002 | 0.412 | 0.129 | 0.9566 |
IntR | Oprice | 0.220 | 0.227 | 0.038 | 0.713 | 0.7745 |
IntR | UnEmp | 0.000 | 0.111 | 0.045 | 0.713 | 0.7745 |
UnEmp | Oprice | 0.082 | 0.977 | 0.290 | 0.310 | 0.6572 |
UnEmp | IntR | 0.012 | 0.001 | 0.001 | 0.001 | 0.6572 |
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Kim Karlsson, H.; Li, Y.; Shukur, G. The Causal Nexus between Oil Prices, Interest Rates, and Unemployment in Norway Using Wavelet Methods. Sustainability 2018, 10, 2792. https://doi.org/10.3390/su10082792
Kim Karlsson H, Li Y, Shukur G. The Causal Nexus between Oil Prices, Interest Rates, and Unemployment in Norway Using Wavelet Methods. Sustainability. 2018; 10(8):2792. https://doi.org/10.3390/su10082792
Chicago/Turabian StyleKim Karlsson, Hyunjoo, Yushu Li, and Ghazi Shukur. 2018. "The Causal Nexus between Oil Prices, Interest Rates, and Unemployment in Norway Using Wavelet Methods" Sustainability 10, no. 8: 2792. https://doi.org/10.3390/su10082792