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The Impact of Disaggregated Oil Shocks on State-Level Consumption of the United States

Author

Listed:
  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)

  • Xin Sheng

    (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, UK)

  • Renee van Eyden

    (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)

  • Mark E. Wohar

    (College of Business Administration, University of Nebraska at Omaha, 6708 Pine Street, Omaha, NE 68182, USA)

Abstract

This paper examines the predictive power of oil supply, demand and risk shocks over the realized volatility of intraday oil returns. Utilizing the heterogeneous autoregressive realized volatility (HAR-RV) framework, we show that all shock terms on their own, and particularly financial market driven risk shocks, significantly improve the forecasting performance of the benchmark HAR-RV model, both in- and out-of-sample. Incorporating all three shocks simultaneously in the HAR-RV model yields the largest forecasting gains compared to all other variants of the HAR-RV model, consistently at short-, medium-, and long forecasting horizons. The findings highlight the predictive information captured by disentangled oil price shocks in accurately forecasting oil market volatility, offering a valuable opening for investors and corporations to monitor oil market volatility using information on traded assets at high frequency.

Suggested Citation

  • Rangan Gupta & Xin Sheng & Renee van Eyden & Mark E. Wohar, 2020. "The Impact of Disaggregated Oil Shocks on State-Level Consumption of the United States," Working Papers 202045, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202045
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sheng, Xin & Marfatia, Hardik A. & Gupta, Rangan & Ji, Qiang, 2023. "The non-linear response of US state-level tradable and non-tradable inflation to oil shocks: The role of oil-dependence," Research in International Business and Finance, Elsevier, vol. 64(C).
    2. Sheng, Xin & Kim, Won Joong & Gupta, Rangan & Ji, Qiang, 2023. "The impacts of oil price volatility on financial stress: Is the COVID-19 period different?," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 520-532.
    3. Gupta, Rangan & Sheng, Xin & van Eyden, Reneé & Wohar, Mark E., 2021. "The impact of disaggregated oil shocks on state-level real housing returns of the United States: The role of oil dependence," Finance Research Letters, Elsevier, vol. 43(C).

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    More about this item

    Keywords

    Oil shocks; state-level consumption; oil dependency; local projection model; impulse response functions;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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