Oil and the economy: A cross bicorrelation perspective

In this paper, we use a cross bicorrelation test to study the relationship between the real price of oil and industrial production in the United States. We find evidence of nonlinearity, for different window frames, over the period from February 1974 to May 2013. Interestingly we find evidence of nonlinearity in two periods that coincide with periods of economic or political instability. Furthermore, we find that in both cases the price of oil leads U.S. industrial production. These findings are important, because they complement the existing literature regarding the existence of a nonlinear and asymmetric relationship between the oil price and economic activity.