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The Current Account and Domestic Unemployment

The Current Account and Domestic Unemployment. A United States analysis 1970-2008 Joseph Perry. Research Question. Research Hypothesis The Current Account balance has a significant, positive effect on the US unemployment rate.

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The Current Account and Domestic Unemployment

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  1. The Current Account and Domestic Unemployment A United States analysis 1970-2008 Joseph Perry

  2. Research Question • Research Hypothesis • The Current Account balance has a significant, positive effect on the US unemployment rate. • (that is to say a rise in the US Current Account balance leads to a rise in US Unemployment rate) • Null Hypothesis • The Current Account balance has no significant effect on the US Unemployment rate.

  3. Background/Literature Review Griswold, Daniel. "Bad News on the Trade Deficit Often Means Good News on the Economy." Free Trade Institute. Cato Institute, 11 Jan. 2005. Web. Conclusion- Current account deficit associated with growing economy, thus higher wages and lower unemployment. “Evaluations of Current Account Fluctuations” Ministry of Economy, Trade, and Industry. Japan. September 2008 Conclusion- Current account balance does not have a clear relation to unemployment

  4. Data • Sample Size: 39 years 1970-2008 • Independent and dependent variables are all interval-ratio level of measurement • Dependent Variable: US Unemployment rate (unemployed/labor force *100) (Dept of Labor) • Independent Variables: • Current Account balance • Absolute level (US Dept Com) • Average price of barrel of oil • US dollars (IOGA) • Inflation rate • Percentage (Dept of Labor) • Wage rate (Dept Labor) • GDP per capita • (Constant 1995 dollars)

  5. Descriptive Statistics/Graphs

  6. Descriptive Statistics

  7. Autocorrelation • With a Time Series, Autocorrelation is always an issue • Autocorrelation of the Unemployment variable strong • Therefore I took the first difference (UnEmploy[_n]- UnEmploy[_n-1])/(UnEmploy[_n-1]) There was no significant Autocorrelation of this variable

  8. Regression Analysis dUnemployment is the dependent variable

  9. Conclusion • Initially not significant, but when you start controlling for inflation and econ growth… • Then Balance becomes statistically significant • Positive direction • Therefore, on account of the significance of the more complex model, I reject the HO and accept the HR :Current Account Balance does have a significant effect on the US Unemployment rate • Weakness of study—very complex issue • Policy suggestions---Continue current account deficit, lucky choice for present situation

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