The stability of US economic policy: Does it really matter for oil price?

This paper explores the time-varying interactions between oil price (OP) and U.S. economic policy uncertainty (EPU), monetary EPU (MEPU), fiscal EPU (FEPU), trade EPU (TEPU). The existing studies focus more on the unilateral impacts, cannot explore which kind of policy uncertainty has the closest interactions with OP, also ignore the relationships based on the time and frequency domains, then this paper fills these gaps by employing the wavelet analysis. The empirical result shows that the influences from EPU to OP are both positive and negative, which highlights that policy uncertainty of the U.S. economy can affect the oil market. This result is consistent with the equilibrium model, which suggests that EPU has certain impacts on OP. In turn, OP has a positive effect on EPU, which indicates that oil bull market causes policy uncertainty to increase. In general, MEPU has a closer relationship with OP than FEPU and TEPU before Trump becomes the U.S. president. Understanding the relationship between policy uncertainty and oil market can not only assist investors to optimize their asset allocation and reduce the investment losses, but also provide insights for the U.S. policy-making authorities to readjust the energy pattern and stabilize the national economy. (C) 2020 Elsevier Ltd. All rights reserved.