Abstract
This study examined the effect of West Texas Intermediate (WTI) crude oil price shocks on key macroeconomic variables, namely the Consumer Price Index (CPI), Brent crude oil prices and Federal Reserve Rate (FEDRATE). Monthly data from 2010 to 2025 were used to examine the short- and long-run effects of oil price fluctuations. A Structural Vector Autoregression (SVAR) framework was utilized to explore the dynamic interactions among these variables. The empirical analysis findings suggest that WTI price fluctuations exert significant short-run effects on Brent prices, inflation and the FEDRATE, while their long-run impacts gradually decline. Brent prices respond strongly and immediately to WTI shocks, reflecting the close integration between domestic and international oil markets. CPI exhibits an inflationary response in the short run, whereas the FEDRATE shows a positive short-run reaction, consistent with an active monetary response to oil-induced inflationary pressure. The findings also reflect the growing importance of oil price shocks in explaining fluctuations in Brent prices and monetary policy over time. These findings indicate that oil price shocks remain a major contributor to macroeconomic fluctuations in the U.S. economy. This study underscores the need for policymakers to closely monitor oil price movements and implement policies that mitigate the adverse impact of oil price variations on the economy while promoting energy diversification and long-term economic resilience.
Keywords: Brent Crude Oil, Consumer Price Index, Federal Reserve Rate, Structural Vector Autoregression, West Texas Intermediate.