Jobs and Oil Price Shocks: Asymmetries and Nonlinearities

Abstract

This paper investigates the dynamic responses of employment flows to oil price shocks for the U.S. Manufacturing sector in the post-1973 period. Using the latest available data and state-of-the-art econometric methods of estimation and inference, I formally test for asymmetries in responses of job flows to positive and negative oil price innovations --- an issue that has recently been brought into the spotlight of academic debate. In addition to the recently developed impulse response function (IRF) based Wald test, this paper suggests performing a nonparametric IRF-density-based test of asymmetry, which is unconditional of the magnitude of oil price shocks as well as able to account for their relative likelihood. This permits inference about a general tendency of asymmetries in impulse responses. I find strong evidence in favor of asymmetric responses of manufacturing job flows to oil price shocks both on the aggregate and industry group levels.