Do Oil Price Shocks Drive Unemployment? Evidence from Canada

Abstract: This paper investigates the dynamic relationships between the crude oil price (COP) and the unemployment rate (UR) in Canada with a bootstrap subsample rolling-window causality test. The empirical results show that there exists a dynamic causal link between COP and UR in certain subsample intervals, which does not fully support Carruth’s model. A decrease in major oil companies’ production and development of U.S. shale oil is employed to explain the fluctuating relationship between COP and UR in Canada. Some policies are thus provided to alleviate shocks from oil prices, including oil export structure adjustment and monitor mechanism establishment for Canada. Keywords: Rolling Window Bootstrap, Time-Varying Causality, Unemployment Rate, Crude Oil Price JEL Classification Number: J21, Q43