THE RELATIONSHIP OF GLOBAL ECONOMIC POLICY UNCERTAINTY AND CRUDE OIL PRICES: APPLICATION OF CAUSALITY IN FREQUENCY

Abstract

Purpose- In this study, the effect of global economic policy uncertainty on crude oil prices is investigated. Methodology- In the study, which considers the Global Economic Policy Uncertainty (GEPU) Index as an indicator of global economic policy uncertainty and the American WTI crude oil spot and forward prices for crude oil, the data set consists of monthly data for the period January 1997-April 2022. These data were analyzed by Breitung and Candelon's (2006) frequency causality test. Findings- According to the results of Breitung and Candelon's (2006) frequency causality test, only long-term causality relationship was found from GEPU to American WTI crude oil spot and futures prices. In addition, it is seen that there is no causality relationship from American WTI crude oil spot prices to GEPU in short-term, mid-term and long-term while there is only long-term causality from American WTI crude oil future prices to GEPU. Conclusion- It is thought that economic policy uncertainty tends to affect crude oil prices due to differences in demand. In line with these results, it becomes important for investors to consider the GEPU Index and the economic conditions affecting this index within the scope of their hedging strategies. Keywords: Economic policy uncertainty, crude oil, spot market, futures market, causality in frequency JEL Codes: G32, G15, C32