Reconsidering the macroeconomics of the oil price in Germany: Testing for causality in the frequency domain

This paper reconsiders the macroeconomics of the oil price for Germany. It investigates whether causality between the oil price and a selection of both macroeconomic and financial market variables differs between frequency bands. Both a bivariate frequency-wise causality measure and its higher-dimensional extension are applied. The main findings are that short-run causality exists between the oil price and variables such as short-term interest rates and the German share price index, while long-run causality is found between the oil price and long-term interest rates. Moreover, the oil price predicts the consumer price index at a high number of different frequencies, while no significant causality is found to run from the oil price to industrial production and the unemployment rate.