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The Impact of Monetary Policy Surprises on Energy Prices


  • Arabinda Basistha,

    1. Arabinda Basistha is an Associate Professor of Economics at the Department of Economics, West Virginia University, Morgantown, West Virginia
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  • Alexander Kurov

    Corresponding author
    1. Alexander Kurov is an Associate Professor of Finance at the Department of Finance, West Virginia University, Morgantown, West Virginia
    • Correspondence author, Department of Finance, College of Business and Economics, West Virginia University, P.O. Box 6025, Morgantown, WV 26506. Tel: 304-293-7892, Fax: 304-293-3274, e-mail:

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  • We thank Jeffrey Frankel, Dick Startz, participants at the conference held in honor of Charles Nelson at the University of Washington, seminar participants at the 2012 Meetings of the Financial Management Association, and participants of the forecasting seminar at the George Washington University. Special thanks to an anonymous referee for many helpful suggestions. Errors or omissions are our responsibility.


This paper examines the effect of monetary policy surprises on energy prices at intraday, daily, and monthly frequencies. We measure monetary policy shocks using changes in interest rate futures prices that capture unexpected changes in the fed funds target rate. We find a significant response of energy prices to surprise changes in the fed funds target rate in an intraday window immediately following the monetary announcement. However, the accumulated responses of energy prices to monetary shocks over a period of several days after the announcement are statistically insignificant. We also use fed funds futures data to identify the contemporaneous impact of monetary policy shocks on oil prices in a monthly structural vector autoregressive (VAR) setup. We find no statistically significant effect of federal funds rate shocks on oil prices. The VAR estimates support the assumption of no contemporaneous feedback from monetary policy to energy prices. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 35:87–103, 2015