Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273299 
Year of Publication: 
2018
Series/Report no.: 
Working Paper Series No. W18:05
Publisher: 
University of Iceland, Institute of Economic Studies (IoES), Reykjavik
Abstract: 
We estimate the relationship between investment and unemployment over the time period 1960-2015 in 20 OECD countries. While neoclassical growth theory typically assumes full employment – with no effect of investment on unemployment – we find that over our sample period covering more than five decades, a statistically significant negative relationship does exist: when investment fell, unemployment increased. When the time period is broken down into two sub-periods to take account of the Great Recession, we find that the estimated coefficient of investment is slightly smaller when the period 2001-2015 is added to the 1960-2000 period. We also find a positive effect of the current account surplus on unemployment that very likely works through investment. A non-monetary model shows how an increase in policy uncertainty that sharply contracts investment and raises unemployment can lead to an increase in current account surplus.
Subjects: 
Long swings of unemployment
investment
current account
Great Recession
JEL: 
E10
E22
E24
Document Type: 
Working Paper

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