Investigating the Asymmetric Effects of Changes in Oil Prices and Interest Rates on Unemployment Rate in Iran NARDL Approach

Unemployment rate is one of the economic indicators that has
always been considered by policy makers and economists.
Numerous factors and economic variables affect this index. Given
the economic conditions of Iran as an oil exporter and the imposition
of economic sanctions as well as the Islamic banking system, it is
necessary to study the impact of oil prices and interest rate as two
key variables. In this study, in order to investigate the effects of oil
price changes and interest rates on employment, the linear
autoregressive distributed lag (ARDL) of Pesaran et al. (2001) and
the asymmetric nonlinear NARDL model of Shin et al. (2013) were
used. Asymmetry in the nonlinear model is represented via positive
and negative partial sum decomposition of oil price and interest rate.
ARDL suggests that although oil price and interest rate changes have
minor short run effects but they have significant long run effects in
all the cases. The NARDL model presents a different picture of the
effects of changes in oil prices and interest rates on the
unemployment rate. While in the short run, the changes of oil price
have no effect on the unemployment rate and only changes in
interest rates affect it, in the long run, in addition to interest rates,
rising oil prices also affect the unemployment rate. The results of the
study show that in the short and long term, falling interest rates have
more effects than increasing it and increasing oil prices have more
effects than reducing it.