The High-Frequency Response of Energy Prices to Monetary Policy: Understanding the Empirical Evidence

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper examines the impact of conventional and unconventional monetary policy on energy prices, using an event study with intraday data. Three measures for monetary policy surprises are used: 1) the surprise change to the current federal funds target rate, 2) the surprise component to the future path of policy, and 3) the unanticipated announcements of future large-scale asset purchases (LSAPs). Estimation results show that monetary policy news has economically important and highly significant effects on the level and volatility of energy futures prices and their trading volumes. I find that, on average, a hypothetical unanticipated 100 basis point hike in the federal funds target rate is associated with roughly a 3 percent decrease in West Texas Intermediate oil prices. I also document that, in a narrow window around the Federal Open Market Committee meeting, the Federal Reserve's LSAP1 and LSAP2 programs have a cumulative financial market impact on crude oil equivalent to an unanticipated cut in the federal funds target rate of 155 basis points. Monetary policy affects oil prices mostly by affecting the value of the U.S. dollar exchange rate. Intraday energy prices also respond to news announcements about the U.S. macroeconomy and inventories. The daily responses are never significant, except in the case of inventory news.

Monetary policy uncertainty, positions of traders and changes in commodity futures prices

“…MPU t is included in the time‐varying risk premium component in light of the empirical evidence suggesting that monetary policy shocks affect commodity prices (Basistha & Kurov, ; Frankel, , Rosa, ). Substituting for the risk premium in equation yields: …”

Modelling the Monetary Impact of Oil Price Volatility in Nigeria: Evidence from GARCH Models

“…Lastly, the paper shows that the policy responses implied by a policy rule, whose coefficients were chosen to maximize welfare, differ substantially from the policy response implied by the same rule estimated on historical data. In another study for the U.S.A, Rosa (2013) examined the impact of conventional and unconventional monetary policy on energy prices, using an event study with intraday data. Estimation results show that monetary policy news strongly impacts the 73 © 2021 AESS Publications.…”

Unconventional Monetary Policy and Asset Price Risk

“…Most studies find that UMPs that ease policy (both announcements and operations) serve to reduce interest rates and depreciate the exchange rate of the domestic country. In particular, an emerging body of evidence indicates that U.S. asset purchase announcements lowered Treasury yields and depreciated the U.S. dollar, particularly over short horizons (such as one day)-see Gagnon and others (2010), Neeley (2010), Leduc (2011, 2013), Szczerbowics (2011), and Rosa (2013). Similar results have been found for the United Kingdom with respect to gilt yields and sterling by Joyce and others (2010) and Glick and Leduc (2011).…”