The Impact of Monetary Policy Surprises on Energy Prices

Journal of Futures Markets, Forthcoming

31 Pages Posted: 24 Jun 2013 Last revised: 13 Jul 2013

See all articles by Arabinda Basistha

Arabinda Basistha

West Virginia University - College of Business & Economics

Alexander Kurov

West Virginia University - College of Business & Economics

Date Written: June 1, 2013

Abstract

This paper examines the effect of monetary policy surprises on energy prices at intra-day, daily, and monthly frequencies. We measure monetary policy shocks using changes in interest rate futures prices that capture unexpected changes in the federal funds target rate. We find a significant response of energy prices to surprise changes in the federal funds target rate in an intra-day window, immediately following the monetary announcement. However, the accumulated responses of energy prices to monetary shocks over a period of several days after the announcement are statistically insignificant. We also use federal funds futures data to identify the contemporaneous impact of monetary policy shocks on oil prices in a monthly structural VAR setup. We find no statistically significant effect of federal funds rate shocks on oil prices. The VAR estimates support the assumption of no contemporaneous feedback from monetary policy to energy prices.

Keywords: monetary policy, energy prices, macroeconomic news

JEL Classification: C22, E44, E52, G14, G18, Q43

Suggested Citation

Basistha, Arabinda and Kurov, Alexander, The Impact of Monetary Policy Surprises on Energy Prices (June 1, 2013). Journal of Futures Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2284431 or http://dx.doi.org/10.2139/ssrn.2284431

Arabinda Basistha

West Virginia University - College of Business & Economics ( email )

Morgantown, WV 26506-6025
United States

Alexander Kurov (Contact Author)

West Virginia University - College of Business & Economics ( email )

P.O. Box 6025
Morgantown, WV 26506
United States

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