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Exploring the relationship between global economic policy and volatility of crude futures: A two-factor GARCH-MIDAS analysis

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  • Fang, Ying
  • Fan, Ying
  • Haroon, Muhammad
  • Dilanchiev, Azer

Abstract

This study investigates the impact of global economic policy on the volatility of crude oil futures using a two-factor GARCH-MIDAS (Mixed Data Sampling) analysis. The core of the problem statement is the need to understand how global economic policy affects the volatility of crude oil futures, which has significant implications for investors, decision-makers, and market participants. The study aims to determine the correlation between critical global economic policy variables and crude oil futures volatility. This study combines the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) framework and the Mixed Data Sampling (MIDAS) method to create a Two-Factor GARCH-MIDAS model. This model thoroughly analyzes the long- and short-term dynamics between economic policy and crude oil futures volatility by incorporating macroeconomic and financial market data. The analysis covers a specific period from 2010 to 2021 and considers both prosperous and challenging economic times. The study's narrow geographic focus on a region with significant global economies and oil markets ensures a thorough representation of monetary and fiscal policies and changes in crude oil futures prices. The analysis provided insight into the complex link between volatility in crude oil futures and global economic policy. The results provide insightful information about how changes in interest rates, fiscal policies, and trade regulations affect the volatility of crude oil futures. The study advances knowledge of the connections between economic policy and energy markets, enabling investors and decision-makers in the international oil market to make more informed choices.

Suggested Citation

  • Fang, Ying & Fan, Ying & Haroon, Muhammad & Dilanchiev, Azer, 2023. "Exploring the relationship between global economic policy and volatility of crude futures: A two-factor GARCH-MIDAS analysis," Resources Policy, Elsevier, vol. 85(PA).
    • Handle: RePEc:eee:jrpoli:v:85:y:2023:i:pa:s0301420723004774
    DOI: 10.1016/j.resourpol.2023.103766
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    9. Santosh KUMAR & Bharat Kumar MEHER & Ramona BIRAU & Abhishek ANAND & Mircea Laurentiu SIMION, 2023. "Investigating Volatility Dynamics of the Portugal Stock Market using FIGARCH Models," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 3, pages 39-45.
    10. Yan Wang & Ranran Zhao, 2024. "Coupling coordination development between eco-investment, tourism, and logistics in Anhui Province, China," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-13, December.

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