The Relationship between Unemployment Rate, Oil Price and Interest Rate in Iran

The oil price is one of the key variables of any economy that plays a significant role in determining the economic situation of each country. The main objective of this study is to investigate the relationship between unemployment and interest rates and oil price in Iran during 1981-2013. According to this, Johansson co-integration and Toda-Yamamoto Granger causality test have been used. Coefficients obtained by Johansson method based on collective vector shows that the unemployment rate is a reverse function of oil prices, which will lead to 2.28 percent reduction in the unemployment rate. Variable of oil price, during this period, had a negative impact on unemployment, which is considered as a good result due to the high dependence of the country economy on oil. Also, if the interest rate increases one percent, in the long run, the unemployment rate will increase 0.94 percent. Also in the case of one percent increase in private sector investment, the unemployment rate will decrease 0.80 percent. causality test results show that oil prices and interest rate are the causes of unemployment in the Iranian economy.