Volatile oil and the U.S. economy

Volatile oil prices have been an interesting topic for both market participants and policy makers. While several studies have attempted to test the interaction between oil price shocks and the economy, there is limited research evaluating the impact of oil price volatility on the U.S. economy. This study attempts to provide a relatively complete picture through testing for the interactions between oil prices, macroeconomic variables and other shock variables commonly used in the literature. In addition, we show that Brent oil prices contain more information in predicting macroeconomic variables than the West Texas Intermediate oil prices. Econometric methods utilized here help evaluate the interactions from the short-run, long-run and volatility transmission perspectives. Our results show that not only oil prices significantly impact the U.S. economy, but the volatility of those prices also spillover to a significant portion of the macroeconomic variables.