Dynamic cyclical comovements of oil prices with industrial production, consumer prices, unemployment, and stock prices

This paper examines the empirical relationship between oil prices and several key macroeconomic variables. In particular, we investigate the cyclical comovements of crude oil prices with output, consumer prices, unemployment, and stock prices. The methodology involves the use of the Hodrick–Prescott [Hodrick, R.J., Prescott, E.C., 1980. Post-War US Business Cycles: An Empirical Investigation. Working Paper, Carnegie Mellon University] and Baxter–King [Baxter, M., King, R.G., 1999. Measuring business cycles: approximate band-pass filters for economic time series. Review of Economics and Statistics 81, 575–593] filters, as well as the recently developed full-sample asymmetric Christiano–Fitzgerald [Christiano, L.J., Fitzgerald, T.J., 2003. The band pass filter. International Economic Review 44, 435–465] band-pass filter. Contemporaneous and cross-correlation estimates are made using the stationary cyclical components of the time series to make inference about the degree to which oil prices move with the cycle. Besides documenting a number of important cyclical relationships using three different time series filtering methods, the results suggest that crude oil prices are procyclical and lag industrial production. Additionally, we find that oil prices lead consumer prices.