The response of oil market to US monetary policy surprises

Tarek Chebbi

International Journal of Economic Policy in Emerging Economies, 2018, vol. 11, issue 1/2, 159-168

Abstract: The impact of monetary policy surprises from the USA on volatility of oil returns are examined over a period of instability from January 5, 2004 through December 31, 2008. Following Kuttner (2001), I use the change in the one-day current-month futures rate at a given date to measure monetary policy news. Using EGARCH model, my results suggest that these shocks are an important driver of the oil market. I find that the volatility reacts in a statistically significant and economically relevant fashion to surprise changes in the target rate. The estimated effect on the volatility is positive. Moreover, I show that the daily changes in federal funds futures rates don't have any role in the dynamics of oil volatility during the sample period. Finally, I also show that all model parameters to be highly significant with higher volatility persistence.

Keywords: federal open market committee; FOMC; US monetary policy surprises; oil returns; conditional variance; EGARCH. (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijepee:v:11:y:2018:i:1/2:p:159-168

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