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How to construct monthly VAR proxies based on daily surprises in futures markets

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  • Kilian, Lutz

Abstract

It is common in applied work to estimate responses of macroeconomic aggregates to news shocks derived from surprise changes in daily futures prices around the date of policy announcements. This requires mapping the daily surprises into a monthly shock that may be used as an external instrument in a monthly VAR model or local projection. The standard approach has been to sum these daily surprises over the course of a given month when constructing the monthly proxy variable, ignoring the accounting relationship between daily and average monthly price data. In this paper, I discuss an alternative approach to constructing monthly proxies from daily surprises that takes account of this link and revisit the question of how to use OPEC announcements to identify news shocks in VAR models of the global oil market. The proposed approach calls into question the interpretation of the identified shock as oil supply news and implies quantitatively and qualitatively different estimates of the macroeconomic impact of OPEC announcements.

Suggested Citation

  • Kilian, Lutz, 2024. "How to construct monthly VAR proxies based on daily surprises in futures markets," Journal of Economic Dynamics and Control, Elsevier, vol. 168(C).
    • Handle: RePEc:eee:dyncon:v:168:y:2024:i:c:s0165188924001581
    DOI: 10.1016/j.jedc.2024.104966
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    References listed on IDEAS

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    Cited by:

    1. Christina Anderl & Guglielmo Maria Caporale, 2025. "Gasoline Price Expectations as a Transmission Channel for Gasoline Price Shocks," CESifo Working Paper Series 11924, CESifo.
    2. Yang Feng & Xiaonan Hu & Songsong Hou & Yan Guo, 2025. "A Novel BiGRU-Attention Model for Predicting Corn Market Prices Based on Multi-Feature Fusion and Grey Wolf Optimization," Agriculture, MDPI, vol. 15(5), pages 1-25, February.
    3. Alexander Chudik & Lutz Kilian, 2026. "Mean Group and Pooled Mixed-Frequency Estimators of Responses of Low-Frequency Variables to High-Frequency Shocks," Working Papers 2603, Federal Reserve Bank of Dallas.
    4. Francesco Jacopo Pintus & Jan P.A.M. Jacobs & Elmer Sterken, 2024. "Fiscal Impacts of Climate Anomalies," CAMA Working Papers 2024-74, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    5. Daniele Colombo & Francesco Toni, 2025. "Understanding Gas Price Shocks: Elasticities, Volatility and Macroeconomic Transmission," GREDEG Working Papers 2025-20, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    6. Martin Bruns & Helmut Lütkepohl, 2026. "Review of Proxy Vector and Autoregressive Analysis," University of East Anglia School of Economics Working Paper Series 2026-01, School of Economics, University of East Anglia, Norwich, UK..
    7. Tobias Broer & John V. Kramer & Kurt Mitman, 2025. "The Distributional Effects of Oil Shocks," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 73(3), pages 851-889, September.
    8. Herrera, Ana María & Rangaraju, Sandeep Kumar, 2025. "The time-varying effects of oil news on inflation," Energy Economics, Elsevier, vol. 152(C).
    9. Lutz Kilian & Michael D. Plante & Alexander W. Richter, 2025. "Macroeconomic Responses to Uncertainty Shocks: The Perils of Recursive Orderings," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 40(4), pages 395-410, June.
    10. Daniele Colombo & Francesco Toni, 2025. "Understanding Gas Price Shocks: Elasticities, Volatilities, and Macroeconomic Transmission," LEM Papers Series 2025/20, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    11. Ryan Hanson & Ana María Herrera, 2025. "The Effect of Oil News Shocks on Job Creation and Destruction," Working Papers 25-06, Center for Economic Studies, U.S. Census Bureau.
    12. Attílio, Luccas Assis & Faria, João Ricardo & Rodrigues, Mauro & Silva, Emilson, 2025. "Spillover effects from oil markets on international ethanol markets and Chinese electricity production," Energy Policy, Elsevier, vol. 207(C).
    13. Waris, Muhammad & Younis, Ijaz & Naveed, Rana Tahir & Shahid, Muhammad Sadiq & Abbas, Muhammad, 2026. "Dynamic co-movement of stock market and risk management by hedging strategies in diverse portfolios: A wavelet-multivariate GARCH," Chaos, Solitons & Fractals, Elsevier, vol. 202(P2).
    14. Helmut Lütkepohl & Till Strohsal, 2025. "Revisiting Oil Supply News Shocks: Proxy vs. Non-Gaussian Structural Vector Autoregressions," Discussion Papers of DIW Berlin 2146, DIW Berlin, German Institute for Economic Research.
    15. Martin Bruns & Helmut Lütkepohl, 2026. "Review of Proxy Vector Autoregressive Analysis," Discussion Papers of DIW Berlin 2155, DIW Berlin, German Institute for Economic Research.
    16. Qureshi, Irfan A. & Ahmad, Ghufran, 2025. "Oil price shocks and US business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 177(C).

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    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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