Regime-switching energy price volatility: The role of economic policy uncertainty

This paper analyzes the volatility patterns of oil and natural gas prices in the United States and how they have changed due to economic policy uncertainty in the pre-and post-shale era. Using Markov-Switching GARCH models, we find evidence of heterogeneous volatility regimes for both commodities (i.e., high vs. low volatility). While the volatility persistence for oil is similar during the two sub-periods, significant changes have occurred to the natural gas market. Using quantile regressions, we find that economic policy uncertainty increases the probability of agitated market conditions of both markets, although this effect has weakened during the post-shale period.