The impact of US monetary policy uncertainties on oil and gas return volatility in the futures and spot markets

This study investigates the effects of US monetary policy uncertainties on long-run oil and gas return volatility in the futures and spot markets using a GARCH-MIDAS (generalized autoregressive conditional heteroskedasticity mixed data sampling) model. The analysis comprises three periods: the pre-and post-crisis subsamples (based on the 2007–2009 financial crisis) and the whole sample (2003m1-2018m11). Two kinds of uncertainties are considered: news-based uncertainty and uncertainties regarding monetary variables, such as the long-term interest rate, the effective exchange rate, and the money supply, in the US. The results indicate persistence in the oil and gas market fluctuations in all periods, regardless of the choice of the model specification. The results are similar in the oil and gas markets in terms of the sign coefficients of the news-based and monetary variables. The sign of the coefficients in the gas markets are consistent with expectations but not for oil markets in the post-crisis period. US long-term uncertainty affects both the gas and oil markets. •US monetary policy uncertainties affect both the oil and gas markets.•Oil and gas market fluctuations due to uncertainty shocks are persistent.•Both the futures and spot markets are affected in the long run.•Traders in these markets make mistakes due to heterogenous beliefs.