The Impact of Crude Oil Price Changes in The Yield and Fluctuation of Manufacturing and Transportation Industries

Abstract

Given that Russia was one of the largest oil exporters, has left the oil market unstable as the war between Russia and Ukraine intensifies. This report, studies the effect of the oil shock on returns and volatility of manufacturing and transportation industries of the US, to understand the relationship, lag, and intensity between these industries in conjunction with the Crude oil price in the international market. By using Time-Series data collected from NYME and constructing a VAR model, an ARIMA-GARCH model has been formulated using likelihood ratio lag of 12. The report finds out no significant relationship between the oil shock triggered by Russian-Ukrainian war on the US transportation and manufacturing industry. The Yield and Volatility of these two industries have not been driven due to exogenous factors, crude oil price. There is a possibility that the impact is lagged and hasn’t occurred yet or is too statistically small that it is hard to be captured by the model. The impact of exogenous shocks may be lagged much higher until it destabilizes these sectors. Government must set countermeasures based on lag effect as the impact is indirect.