The Relationship Between the Price of Oil and Unemployment in Sweden

The importance of oil in our daily lives is well known and especially when it comes to transportation. Oil is a unique commodity because of its importance and its effect on the world economy. The largest oil region in the world is the Middle East, a region that has problems with terrorists, wars, and dictatorships. Since the countries in the Middle East control most of the supply of oil in the world this affects the way oil dependent countries maintain their relationship to these countries. Oil is therefore a political instrument that has to be treated carefully. The Organization of Petroleum Exporting Countries (OPEC) controls the largest oil supplies which gives it a huge power and it can control the supply and price of oil.

This paper examines how the price of oil affects the unemployment. The case of Sweden is interesting since its politics are very different compared to other industrialized countries when it comes to unemployment and benefits. Our main objective is to see whether a change in the oil price will cause a change in unemployment at a later stage. We perform linear regression analysis relating current changes in the variables and Granger causality tests to conclude if there exists a direct relationship…


1 Introduction
1.1 Purpose
1.2 Outline
2 Background
2.1 Oil price fluctuations prior to 1973
2.2 SOPI and NOPI
2.3 Oil consumption
2.4 Unemployment
2.4.1 Unemployment benefits
2.4.2 Unemployment in Sweden
3 Theoretical Framework
3.1 Equilibrium unemployment model
3.2 Granger causality
4 Empirical work
4.1 Data
4.2 Linear regression
4.3 Granger Causality Test
5 Analysis
6 Conclusions and Suggestions for Further Research
Appendix 1 – Lag Tests
Appendix 2 – Granger test calculations
Appendix 3 – SPSS regressions

Author: Mellquist, Hannes,Femermo, Markus

Source: Jönköping University

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