How Do Oil and Natural Gas Prices affect U.S. industrial production? Utilizing wavelet nonlinear denoised based quantile analysis

This study investigates the relationship of the U.S. industrial production with West Texas Intermediate crude oil and Henry Hub natural gas prices. It determines the time-varying asymmetric relationship of crude oil, natural gas and industrial production from 1986 to 2018 by using Maximum Overlap Discrete Wavelet Transform and Quantile Regression. The U.S. industrial production has a short-term supply-driven link with crude oil prices and a demand-driven link with natural gas prices. In medium term, both crude oil and natural gas prices exhibit a demand-driven link. While in the long term both natural gas and crude oil demonstrates an asymmetric relationship with industrial production. The results help the U.S. economic policymakers and all stakeholders in terms of applying a mix kind of energy policy, including conventional and non-conventional energy resources. Overall, the study provides new dimensions to the current literature by analyzing the relationship of crude oil prices, natural gas prices and industrial production growth by concentrating upon the time-frequency domain of the economic cycle.