IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v467y2017icp326-344.html
   My bibliography  Save this article

Cross-correlations between the US monetary policy, US dollar index and crude oil market

Author

Listed:
  • Sun, Xinxin
  • Lu, Xinsheng
  • Yue, Gongzheng
  • Li, Jianfeng

Abstract

This paper investigates the cross-correlations between the US monetary policy, US dollar index and WTI crude oil market, using a dataset covering a period from February 4, 1994 to February 29, 2016. Our study contributes to the literature by examining the effect of the US monetary policy on US dollar index and WTI crude oil through the MF-DCCA approach. The empirical results show that the cross-correlations between the three sets of time series exhibit strong multifractal features with the strength of multifractality increasing over the sample period. Employing a rolling window analysis, our empirical results show that the US monetary policy operations have clear influences on the cross-correlated behavior of the three time series covered by this study.

Suggested Citation

  • Sun, Xinxin & Lu, Xinsheng & Yue, Gongzheng & Li, Jianfeng, 2017. "Cross-correlations between the US monetary policy, US dollar index and crude oil market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 467(C), pages 326-344.
    • Handle: RePEc:eee:phsmap:v:467:y:2017:i:c:p:326-344
    DOI: 10.1016/j.physa.2016.10.029
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378437116307166
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
    File URL: https://libkey.io/10.1016/j.physa.2016.10.029?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ben S. Bernanke & Kenneth N. Kuttner, 2005. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," Journal of Finance, American Finance Association, vol. 60(3), pages 1221-1257, June.
    2. Yang, Lu & Hamori, Shigeyuki, 2014. "Spillover effect of US monetary policy to ASEAN stock markets: Evidence from Indonesia, Singapore, and Thailand," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 145-155.
    3. Yuan, Ying & Zhuang, Xin-tian & Liu, Zhi-ying, 2012. "Price–volume multifractal analysis and its application in Chinese stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(12), pages 3484-3495.
    4. Wen-Jie Xie & Zhi-Qiang Jiang & Gao-Feng Gu & Xiong Xiong & Wei-Xing Zhou, 2015. "Joint multifractal analysis based on the partition function approach: Analytical analysis, numerical simulation and empirical application," Papers 1509.05952, arXiv.org.
    5. Grech, D & Mazur, Z, 2004. "Can one make any crash prediction in finance using the local Hurst exponent idea?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 336(1), pages 133-145.
    6. Hammoudeh, Shawkat & Bhar, Ramaprasad & Thompson, Mark A., 2010. "Re-examining the dynamic causal oil-macroeconomy relationship," International Review of Financial Analysis, Elsevier, vol. 19(4), pages 298-305, September.
    7. Rafal Rak & Stanislaw Drozdz & Jaroslaw Kwapien & Pawel Oswiecimka, 2015. "Detrended cross-correlations between returns, volatility, trading activity, and volume traded for the stock market companies," Papers 1510.04910, arXiv.org, revised Nov 2015.
    8. Wang, Yudong & Wei, Yu & Wu, Chongfeng, 2010. "Cross-correlations between Chinese A-share and B-share markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(23), pages 5468-5478.
    9. Jonathan H. Wright, 2012. "What does Monetary Policy do to Long‐term Interest Rates at the Zero Lower Bound?," Economic Journal, Royal Economic Society, vol. 122(564), pages 447-466, November.
    10. Pawe{l} O'swic{e}cimka & Stanis{l}aw Dro.zd.z & Marcin Forczek & Stanis{l}aw Jadach & Jaros{l}aw Kwapie'n, 2013. "Detrended Cross-Correlation Analysis Consistently Extended to Multifractality," Papers 1308.6148, arXiv.org, revised Feb 2014.
    11. Zhi-Qiang Jiang & Wei-Xing Zhou, 2011. "Multifractal detrending moving average cross-correlation analysis," Papers 1103.2577, arXiv.org, revised Mar 2011.
    12. Yuan, Ying & Zhuang, Xin-tian & Jin, Xiu, 2009. "Measuring multifractality of stock price fluctuation using multifractal detrended fluctuation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(11), pages 2189-2197.
    13. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    14. Li, Jianfeng & Lu, Xinsheng & Zhou, Ying, 2016. "Cross-correlations between crude oil and exchange markets for selected oil rich economies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 453(C), pages 131-143.
    15. Amira, Khaled & Taamouti, Abderrahim & Tsafack, Georges, 2011. "What drives international equity correlations? Volatility or market direction?," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1234-1263, October.
    16. Basistha, Arabinda & Kurov, Alexander, 2008. "Macroeconomic cycles and the stock market's reaction to monetary policy," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2606-2616, December.
    17. Liu, Li & Wan, Jieqiu, 2011. "A study of correlations between crude oil spot and futures markets: A rolling sample test," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(21), pages 3754-3766.
    18. Ma, Feng & Wei, Yu & Huang, Dengshi & Zhao, Lin, 2013. "Cross-correlations between West Texas Intermediate crude oil and the stock markets of the BRIC," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(21), pages 5356-5368.
    19. Alan S. Blinder, 2012. "Revisiting Monetary Policy in a Low-Inflation and Low-Utilization Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 141-146, February.
    20. Kim, Suk-Joong & Nguyen, Do Quoc Tho, 2009. "The spillover effects of target interest rate news from the U.S. Fed and the European Central Bank on the Asia-Pacific stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 415-431, July.
    21. B. Podobnik & I. Grosse & D. Horvatić & S. Ilic & P. Ch. Ivanov & H. E. Stanley, 2009. "Quantifying cross-correlations using local and global detrending approaches," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 71(2), pages 243-250, September.
    22. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
    23. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    24. Kantelhardt, Jan W. & Zschiegner, Stephan A. & Koscielny-Bunde, Eva & Havlin, Shlomo & Bunde, Armin & Stanley, H.Eugene, 2002. "Multifractal detrended fluctuation analysis of nonstationary time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 316(1), pages 87-114.
    25. Suk-Joong Kim, 2018. "The Spillover Effects of US and Japanese Public Information News in Advanced Asia-Pacific Stock Markets," World Scientific Book Chapters, in: Information Spillovers and Market Integration in International Finance Empirical Analyses, chapter 6, pages 175-201, World Scientific Publishing Co. Pte. Ltd..
    26. Lo, Andrew W, 1991. "Long-Term Memory in Stock Market Prices," Econometrica, Econometric Society, vol. 59(5), pages 1279-1313, September.
    27. Michael D. Bauer & Glenn D. Rudebusch, 2014. "The Signaling Channel for Federal Reserve Bond Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 233-289, September.
    28. Wei-Xing Zhou, 2008. "Multifractal detrended cross-correlation analysis for two nonstationary signals," Papers 0803.2773, arXiv.org.
    29. Mun, Kyung-Chun, 2012. "The joint response of stock and foreign exchange markets to macroeconomic surprises: Using US and Japanese data," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 383-394.
    30. Gu, Rongbao & Chen, Xi & Li, Xinjie, 2014. "Chaos recognition and fractal analysis in the term structure of Shanghai Interbank Offered Rate," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 412(C), pages 101-112.
    31. Qianying Chen & Andrew Filardo & Dong He & Feng Zhu, 2012. "International spillovers of central bank balance sheet policies," BIS Papers chapters, in: Bank for International Settlements (ed.), Are central bank balance sheets in Asia too large?, volume 66, pages 220-264, Bank for International Settlements.
    32. Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
    33. Wang, Yudong & Wei, Yu & Wu, Chongfeng, 2011. "Analysis of the efficiency and multifractality of gold markets based on multifractal detrended fluctuation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(5), pages 817-827.
    34. Pal, Mayukha & Madhusudana Rao, P. & Manimaran, P., 2014. "Multifractal detrended cross-correlation analysis on gold, crude oil and foreign exchange rate time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 416(C), pages 452-460.
    35. Cajueiro, Daniel O. & Tabak, Benjamin M., 2004. "Evidence of long range dependence in Asian equity markets: the role of liquidity and market restrictions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 342(3), pages 656-664.
    36. Gao-Feng Gu & Wei-Xing Zhou, 2010. "Detrending moving average algorithm for multifractals," Papers 1005.0877, arXiv.org, revised Jun 2010.
    37. Liu, Li, 2014. "Cross-correlations between crude oil and agricultural commodity markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 395(C), pages 293-302.
    38. Chng, Michael T., 2009. "Economic linkages across commodity futures: Hedging and trading implications," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 958-970, May.
    39. Xi-Yuan Qian & Ya-Min Liu & Zhi-Qiang Jiang & Boris Podobnik & Wei-Xing Zhou & H. Eugene Stanley, 2015. "Detrended partial cross-correlation analysis of two nonstationary time series influenced by common external forces," Papers 1504.02435, arXiv.org, revised Apr 2015.
    40. Li, Zhihui & Lu, Xinsheng, 2012. "Cross-correlations between agricultural commodity futures markets in the US and China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(15), pages 3930-3941.
    41. Ruan, Qingsong & Wang, Yao & Lu, Xinsheng & Qin, Jing, 2016. "Cross-correlations between Baltic Dry Index and crude oil prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 453(C), pages 278-289.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Petre Caraiani & Adrian Cantemir Călin, 2019. "Monetary Policy Effects on Energy Sector Bubbles," Energies, MDPI, vol. 12(3), pages 1-13, February.
    2. Antonio J. Garz n & Luis . Hierro, 2018. "Fracking, Wars and Stock Market Crashes: The Price of Oil During the Great Recession," International Journal of Energy Economics and Policy, Econjournals, vol. 8(2), pages 20-30.
    3. Zhang, Hongwei & Jin, Chen & Bouri, Elie & Gao, Wang & Xu, Yahua, 2023. "Realized higher-order moments spillovers between commodity and stock markets: Evidence from China," Journal of Commodity Markets, Elsevier, vol. 30(C).
    4. Su, Chi-Wei & Qin, Meng & Tao, Ran & Umar, Muhammad, 2020. "Financial implications of fourth industrial revolution: Can bitcoin improve prospects of energy investment?," Technological Forecasting and Social Change, Elsevier, vol. 158(C).
    5. Han, Liyan & Jin, Jiayu & Wu, Lei & Zeng, Hongchao, 2020. "The volatility linkage between energy and agricultural futures markets with external shocks," International Review of Financial Analysis, Elsevier, vol. 68(C).
    6. Li, Xiao-Ping & Zhou, Chun-Yang & Wu, Chong-Feng, 2017. "Jump spillover between oil prices and exchange rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 486(C), pages 656-667.
    7. Al Rababa'a, Abdel Razzaq & Alomari, Mohammad & Mensi, Walid & Matar, Ali & Saidat, Zaid, 2021. "Does tracking the infectious diseases impact the gold, oil and US dollar returns and correlation? A quantile regression approach," Resources Policy, Elsevier, vol. 74(C).
    8. Lu, Xinsheng & Sun, Xinxin & Ge, Jintian, 2017. "Dynamic relationship between Japanese Yen exchange rates and market anxiety: A new perspective based on MF-DCCA," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 474(C), pages 144-161.
    9. Mensi, Walid & Aslan, Aylin & Vo, Xuan Vinh & Kang, Sang Hoon, 2023. "Time-frequency spillovers and connectedness between precious metals, oil futures and financial markets: Hedge and safe haven implications," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 219-232.
    10. Liu, Donghui & Meng, Lingjie & Wang, Yudong, 2021. "The asymmetric effects of oil price changes on China’s exports: New evidence from a nonlinear autoregressive distributed lag model," Journal of Asian Economics, Elsevier, vol. 77(C).
    11. Li, Shuping & Lu, Xinsheng & Liu, Xinghua, 2020. "Dynamic relationship between Chinese RMB exchange rate index and market anxiety: A new perspective based on MF-DCCA," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 541(C).
    12. Zolfaghari, Mehdi, 2023. "How does US tariff policy affect the relationship among crude oil, the US dollar and metal markets?," Resources Policy, Elsevier, vol. 85(PB).
    13. Yue Liu & Pierre Failler & Jiaying Peng & Yuhang Zheng, 2020. "Time-Varying Relationship between Crude Oil Price and Exchange Rate in the Context of Structural Breaks," Energies, MDPI, vol. 13(9), pages 1-17, May.
    14. Zhang, Yue-Jun & Yan, Xing-Xing, 2020. "The impact of US economic policy uncertainty on WTI crude oil returns in different time and frequency domains," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 750-768.
    15. Qin, Meng & Su, Chi-Wei & Hao, Lin-Na & Tao, Ran, 2020. "The stability of U.S. economic policy: Does it really matter for oil price?," Energy, Elsevier, vol. 198(C).
    16. Yuruixian Zhang & Wei Chong Choo & Yuhanis Abdul Aziz & Choy Leong Yee & Cheong Kin Wan & Jen Sim Ho, 2022. "Effects of Multiple Financial News Shocks on Tourism Demand Volatility Modelling and Forecasting," JRFM, MDPI, vol. 15(7), pages 1-47, June.
    17. Feng, Yusen & Wang, Gang-Jin & Zhu, You & Xie, Chi, 2023. "Systemic risk spillovers and the determinants in the stock markets of the Belt and Road countries," Emerging Markets Review, Elsevier, vol. 55(C).
    18. Su, Chi-Wei & Wang, Dan & Mirza, Nawazish & Zhong, Yifan & Umar, Muhammad, 2023. "The impact of consumer confidence on oil prices," Energy Economics, Elsevier, vol. 124(C).
    19. Qing Peng & Fenghua Wen & Xu Gong, 2021. "Time‐dependent intrinsic correlation analysis of crude oil and the US dollar based on CEEMDAN," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 834-848, January.
    20. Pablo Cansado-Bravo & Carlos Rodríguez-Monroy, 2018. "Persistence of Oil Prices in Gas Import Prices and the Resilience of the Oil-Indexation Mechanism. The Case of Spanish Gas Import Prices," Energies, MDPI, vol. 11(12), pages 1-17, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Li, Wei & Lu, Xinsheng & Ren, Yongping & Zhou, Ying, 2018. "Dynamic relationship between RMB exchange rate index and stock market liquidity: A new perspective based on MF-DCCA," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 508(C), pages 726-739.
    2. Lu, Xinsheng & Sun, Xinxin & Ge, Jintian, 2017. "Dynamic relationship between Japanese Yen exchange rates and market anxiety: A new perspective based on MF-DCCA," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 474(C), pages 144-161.
    3. Ruan, Qingsong & Bao, Junjie & Zhang, Manqian & Fan, Limin, 2019. "The effects of exchange rate regime reform on RMB markets: A new perspective based on MF-DCCA," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 522(C), pages 122-134.
    4. Ruan, Qingsong & Jiang, Wei & Ma, Guofeng, 2016. "Cross-correlations between price and volume in Chinese gold markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 451(C), pages 10-22.
    5. Ruan, Qingsong & Wang, Yao & Lu, Xinsheng & Qin, Jing, 2016. "Cross-correlations between Baltic Dry Index and crude oil prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 453(C), pages 278-289.
    6. Ruan, Qingsong & Zhang, Manqian & Lv, Dayong & Yang, Haiquan, 2018. "SAD and stock returns revisited: Nonlinear analysis based on MF-DCCA and Granger test," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 509(C), pages 1009-1022.
    7. Lu, Xinsheng & Li, Jianfeng & Zhou, Ying & Qian, Yubo, 2017. "Cross-correlations between RMB exchange rate and international commodity markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 486(C), pages 168-182.
    8. Ma, Feng & Wei, Yu & Huang, Dengshi, 2013. "Multifractal detrended cross-correlation analysis between the Chinese stock market and surrounding stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(7), pages 1659-1670.
    9. Ghazani, Majid Mirzaee & Khosravi, Reza, 2020. "Multifractal detrended cross-correlation analysis on benchmark cryptocurrencies and crude oil prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 560(C).
    10. Wang, Gang-Jin & Xie, Chi, 2013. "Cross-correlations between Renminbi and four major currencies in the Renminbi currency basket," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(6), pages 1418-1428.
    11. Sukpitak, Jessada & Hengpunya, Varagorn, 2016. "The influence of trading volume on market efficiency: The DCCA approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 458(C), pages 259-265.
    12. Zhang, Wei & Wang, Pengfei & Li, Xiao & Shen, Dehua, 2018. "The inefficiency of cryptocurrency and its cross-correlation with Dow Jones Industrial Average," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 510(C), pages 658-670.
    13. Guo, Yaoqi & Yu, Zhuling & Yu, Chenxi & Cheng, Hui & Chen, Weixun & Zhang, Hongwei, 2021. "Asymmetric multifractal features of the price–volume correlation in China’s gold futures market based on MF-ADCCA," Research in International Business and Finance, Elsevier, vol. 58(C).
    14. Wang, Qing & Hu, Yiming, 2015. "Cross-correlation between interest rates and commodity prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 428(C), pages 80-89.
    15. İşcanoğlu-Çekiç, Ayşegül & Gülteki̇n, Havva, 2019. "Are cross-correlations between Turkish Stock Exchange and three major country indices multifractal or monofractal?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 525(C), pages 978-990.
    16. Manimaran, P. & Narayana, A.C., 2018. "Multifractal detrended cross-correlation analysis on air pollutants of University of Hyderabad Campus, India," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 502(C), pages 228-235.
    17. Li, Shuping & Lu, Xinsheng & Liu, Xinghua, 2020. "Dynamic relationship between Chinese RMB exchange rate index and market anxiety: A new perspective based on MF-DCCA," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 541(C).
    18. Chatterjee, Sucharita & Ghosh, Dipak, 2021. "Impact of Global Warming on SENSEX fluctuations — A study based on Multifractal detrended cross correlation analysis between the temperature anomalies and the SENSEX fluctuations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 571(C).
    19. Chatterjee, Sucharita, 2020. "Analysis of the human gait rhythm in Neurodegenerative disease: A multifractal approach using Multifractal detrended cross correlation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 540(C).
    20. Pal, Mayukha & Kiran, V. Satya & Rao, P. Madhusudana & Manimaran, P., 2016. "Multifractal detrended cross-correlation analysis of genome sequences using chaos-game representation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 456(C), pages 288-293.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:467:y:2017:i:c:p:326-344. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.