Time-frequency co-movements between oil prices and interest rates: Evidence from a wavelet-based approach |
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| Affiliation: | 1. Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Muscat, Oman;2. South Ural State University, 76, Lenin prospekt, Chelyabinsk, Russian Federation;1. Patrick E. Molony Professor, Department of Economics, Auburn University, 138 Miller Hall, Auburn, AL 36849, United States;2. Department of Economics, University of California Santa Cruz, 1156 High Street, Santa Cruz, CA 95064, United States;1. Department of Tourism and Hospitality, TransWorld University, No. 1221, Zhennan Rd., Douliu City, Yunlin County 640, Taiwan;2. Department of Economics, Soochow University, No. 56, Kueiyang Street, Section 1, Taipei 100, Taiwan;1. Department of Management Sciences, COMSATS University Islamabad, Attock Campus, Pakistan;2. Rennes School of Business, Rennes City, Brittany, France;3. Schulich School of Business, York University, Toronto, Canada;4. Department of Economics, Pusan National University, Busan, Republic of Korea;1. Department of Economics and Lau Chor Tak Institute of Global Economics and Finance, The Chinese University of Hong Kong, Hong Kong;2. Department of Economics, University of Cincinnati, United States;3. Department of Economics, The Chinese University of Hong Kong, Hong Kong;1. Center for Energy and Environmental Policy Research, Institutes of Science and Development, Chinese Academy of Sciences, Beijing 100190, China;2. School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing 100049, China;3. School of Economics & Management, Beihang University, Beijing 100191, China;4. University of Navarra, School of Economics, Edificio Amigos, E-31080 Pamplona, Spain;5. Department of Economics, University of Pretoria, Pretoria 0002, South Africa |
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| Abstract: | This paper investigates time–frequency co-movements between crude oil prices and interest rates. To test this relationship, the study applied a continuous wavelet and cross wavelet approaches to data from West Texas Intermediate (WTI) crude oil prices and interest rates in the United States (U.S.). Results from the sample period revealed significant relationships, in the intermediate term, between WTI crude oil prices and U.S. interest rates. Moreover, co-movements between oil price and interest rate variables were especially sensitive during abnormal political events and periods of financial ‘meltdown’. We further use Partial Wavelet Coherence (PWC) and Multiple Wavelet Coherence (MWC) methods to investigate the impacts of five major control variables namely GDP growth, unemployment, three-month Treasury bill, CPI index and industrial production index. The results show a powerful impact of control variables on oil-interest rates co-movements under different frequencies. Finally, we show evidence of co-integrating long run relationship between oil markets and control variables. These results have important implications for energy investors and policy makers. |
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| Keywords: | Oil prices Interest rates Co-movements Multivariate wavelet approach |
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