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The Impact of Disaggregated Oil Shocks on State-Level Consumption of the United States

Rangan Gupta (), Xin Sheng (), Renee van Eyden () and Mark Wohar ()
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Xin Sheng: Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, UK

No 202045, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper examines the predictive power of oil supply, demand and risk shocks over the realized volatility of intraday oil returns. Utilizing the heterogeneous autoregressive realized volatility (HAR-RV) framework, we show that all shock terms on their own, and particularly financial market driven risk shocks, significantly improve the forecasting performance of the benchmark HAR-RV model, both in- and out-of-sample. Incorporating all three shocks simultaneously in the HAR-RV model yields the largest forecasting gains compared to all other variants of the HAR-RV model, consistently at short-, medium-, and long forecasting horizons. The findings highlight the predictive information captured by disentangled oil price shocks in accurately forecasting oil market volatility, offering a valuable opening for investors and corporations to monitor oil market volatility using information on traded assets at high frequency.

Keywords: Oil shocks; state-level consumption; oil dependency; local projection model; impulse response functions (search for similar items in EconPapers)
JEL-codes: C23 E21 Q41 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2020-05
New Economics Papers: this item is included in nep-ene, nep-mac and nep-ore
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