The response of oil market to US monetary policy surprises. (2018)

• Record Type: Journal Article
• Authors: Chebbi, Tarek
• Is Part Of: International journal of economic policy in emerging economies. Volume 11:Number 1/2(2018)
• Page Start: 159
• Page End: 168
• Publication Date: 2018
• Subjects: federal open market committee -- FOMC -- US monetary policy surprises -- oil returns -- conditional variance -- EGARCH; Russia (Federation) -- Economic policy -- 1991- -- Periodicals; Former Soviet republics -- Economic policy -- 1991- -- Periodicals; China -- Economic policy -- 1991- -- Periodicals; 338.947
• Languages: English
• ISSNs: 1752-0452

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.