Time-frequency co-movements between oil prices and interest rates: Evidence from a wavelet-based approach

Walid Mensi, Mobeen Ur Rehman and Khamis Hamed Al-Yahyaee

The North American Journal of Economics and Finance, 2020, vol. 51, issue C

Abstract: This paper investigates time–frequency co-movements between crude oil prices and interest rates. To test this relationship, the study applied a continuous wavelet and cross wavelet approaches to data from West Texas Intermediate (WTI) crude oil prices and interest rates in the United States (U.S.). Results from the sample period revealed significant relationships, in the intermediate term, between WTI crude oil prices and U.S. interest rates. Moreover, co-movements between oil price and interest rate variables were especially sensitive during abnormal political events and periods of financial ‘meltdown’. We further use Partial Wavelet Coherence (PWC) and Multiple Wavelet Coherence (MWC) methods to investigate the impacts of five major control variables namely GDP growth, unemployment, three-month Treasury bill, CPI index and industrial production index. The results show a powerful impact of control variables on oil-interest rates co-movements under different frequencies. Finally, we show evidence of co-integrating long run relationship between oil markets and control variables. These results have important implications for energy investors and policy makers.

Keywords: Oil prices; Interest rates; Co-movements; Multivariate wavelet approach (search for similar items in EconPapers)
JEL-codes: B26 C25 C54 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818301499

DOI: 10.1016/j.najef.2018.08.019

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