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The high-frequency response of energy prices to U.S. monetary policy: Understanding the empirical evidence

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  • Rosa, Carlo

Abstract

This paper examines the impact of conventional and unconventional monetary policy on energy prices using an event study with intraday data. Three measures for monetary policy surprises are used: 1) the surprise change to the current federal funds target rate, 2) the surprise component to the future path of policy, and 3) the unanticipated announcement of future large-scale asset purchases (LSAP). Estimation results show that monetary policy surprises have economically important and highly significant effects on the level and volatility of energy futures prices and their trading volumes. I find that, on average, a hypothetical unanticipated 100-basis-point hike in the federal funds target rate is associated with roughly a 3% decrease in West Texas Intermediate crude oil prices. I also document that, in a narrow window around the FOMC meeting, the Federal Reserve's LSAP1 and LSAP2 programs have a cumulative financial market impact on crude oil equivalent to an unanticipated cut in the federal funds target rate of 156 basis points.

Suggested Citation

  • Rosa, Carlo, 2014. "The high-frequency response of energy prices to U.S. monetary policy: Understanding the empirical evidence," Energy Economics, Elsevier, vol. 45(C), pages 295-303.
  • Handle: RePEc:eee:eneeco:v:45:y:2014:i:c:p:295-303
    DOI: 10.1016/j.eneco.2014.06.011
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    Cited by:

    1. Olivier Rousse & Benoît Sévi, 2016. "Informed Trading in Oil-Futures Market," Working Papers hal-01410093, HAL.
    2. Wan, Jer-Yuh & Kao, Chung-Wei, 2015. "Interactions between oil and financial markets — Do conditions of financial stress matter?," Energy Economics, Elsevier, vol. 52(PA), pages 160-175.
    3. repec:eee:jbfina:v:86:y:2018:i:c:p:127-142 is not listed on IDEAS
    4. Hipòlit Torró, 2018. "The Response of European Energy Prices to ECB Monetary Policy," Working Papers 2018.09, Fondazione Eni Enrico Mattei.
    5. Walid Bahloul & Rangan Gupta, 2017. "The Impact of Macroeconomic News Surprises and Uncertainty of Major Economies on Returns and Volatility of Oil Futures," Working Papers 201715, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    Monetary policy; Energy prices; Federal funds and oil futures;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance

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