Measuring Oil Price Shocks

The role of oil price shocks in US economic activity and inflation is controversial but a key input to current economic policy. To clarify these relations, we employ a more refined measure of oil shocks based on decomposing highly accurate realized volatility estimated using intraday oil futures data. In reconciling prior results, we find that shocks driven by price increases (decreases) are associated with rising (falling) inflation while only a symmetric volatility channel affects economic activity.