The impact of US economic policy uncertainty on WTI crude oil returns in different time and frequency domains

Yue-Jun Zhang () and Xing-Xing Yan

International Review of Economics & Finance, 2020, vol. 69, issue C, 750-768

Abstract: To explore the potential impact of economic policy uncertainty (EPU) on crude oil prices, this paper first uses the DCC-GARCH model to measure the dynamic conditional correlation between US EPU and West Texas Intermediate (WTI) crude oil returns based on historical data from February 1985 to May 2019, and then employs the network connectedness method to further analyze the impact of various US EPU indices on WTI returns over time and frequency. The empirical results show that, first, almost all the US EPU indices and WTI returns are negatively correlated during the sample period. Second, at the frequency bands of 1–6 months and 6–12 months, almost all the EPU indices may significantly affect WTI returns, while at the frequency band of 12–24 months, only monetary policy uncertainty, regulation policy uncertainty and national security policy uncertainty may significantly affect WTI returns. Finally, the impact of US EPU indices on WTI returns appears particularly stronger when major international events occur, such as the global financial crisis.

Keywords: Economic policy uncertainty; Crude oil price; Time-frequency domains; Connectedness; Information transmission (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (48)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:69:y:2020:i:c:p:750-768

DOI: 10.1016/j.iref.2020.04.001

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