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Dynamic Impact of the U.S. Monetary Policy on Oil Market Returns and Volatility

Author

Listed:
  • Hardik A. Marfatia

    () (Department of Economics, Northeastern Illinois University, BBH 344G, 5500 N. St. Louis Ave., Chicago, IL 60625, USA)

  • Rangan Gupta

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

  • Esin Cakan

    () (Department of Economics, University of New Haven, 300 Boston Post Road, West Haven, CT 06516, USA)

Abstract

In this paper, we assess the dynamic impact of the U.S. monetary policy announcements on oil market futures returns and volatility. We use intra-day data together with a time-varying modeling approach to study the nature of this dynamic impact. In addition, we also control for macroeconomic news shocks and separately study the response of good and bad realized volatility. Evidence suggests that there is a significant time variation in the response of oil returns as well as its volatility to the Federal Reserve policy announcements. Furthermore, we find that higher (lower) uncertainty about Federal Reserve policy actions weakens (strengthens) the impact of the announcements on oil returns and volatility.

Suggested Citation

  • Hardik A. Marfatia & Rangan Gupta & Esin Cakan, 2019. "Dynamic Impact of the U.S. Monetary Policy on Oil Market Returns and Volatility," Working Papers 201916, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201916
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    More about this item

    Keywords

    Monetary Policy; Macroeconomic Surprises; Oil Returns and Volatility; Time-Varying Model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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