Oil prices and economic activity: evidence for G-7 economies based on a wavelet approach

ABSTRACT

This study examines the relationship between oil prices and economic activity in the G-7 economies during the period 1960M1–2014M07 using a wavelet approach. The results show significant differences in the relationship between these two variables depending on the frequencies. Furthermore, we find that oil price shocks affect economic activity at low frequencies (long run) in all G-7 countries, while the effect at high frequencies (short run) is limited to a few countries.

KEYWORDS:

• Oil prices
• economic activity
• wavelet

JEL CLASSIFICATION:

• E32
• Q43
• C49

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ See Crowley (2007) for a recent guide to wavelets for economists.

² Unit root and cointegration tests are available upon request.

Additional information

Funding

Juncal Cunado, Fernando Perez de Gracia and Ignacio Rodriguez gratefully acknowledge financial support from the Ministerio de Economía y Competitividad (ECO2014-55496).