Journal
EMPIRICAL ECONOMICS
Volume 40, Issue 3, Pages 645-655Publisher
PHYSICA-VERLAG GMBH & CO
DOI: 10.1007/s00181-010-0371-x
Keywords
Business cycles; Oil shocks; Wavelets; Cross wavelets; Wavelet coherency
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We use (cross) wavelet analysis to decompose the time-frequency effects of oil price changes on the macroeconomy. We argue that the relation between oil prices and industrial production is not clear-cut. There are periods and frequencies where the causality runs from one variable to the other and vice-versa, justifying some instability in the empirical evidence about the macroeconomic effects of oil price shocks. We also show that the volatility of both the inflation rate and the industrial output growth rate started to decrease in the decades of 1950 and 1960.
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