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This paper examines the relationship between the energy and equity markets by estimating volatility impulse response functions from a multivariate BEKK model of the Goldman Sach's Energy index and the S&P 500; in addition, we also calculate the time varying conditional correlations and time varying dynamic hedge ratios. From volatility impulse response functions, we find that low S&P 500 returns cause substantial increases in the volatility of the energy index; however, we find only a weak response from S&P 500 volatility to energy price shocks. Moreover, our dynamic hedge ratio anlysis suggests that the energy index is generally a poor hedging instrument.

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We propose domestic uncertainty shocks may serve as a channel through which business cycles are transmitted internationally. To quantify uncertainty, we use two measures from the current literature and estimate vector autoregressions to evaluate the effects US uncertainty shocks have on the Japanese and British economies. Our results suggest that US uncertainty shocks have international effects consistent with a demand shock in the context of an open-economy aggregate demand and aggregate supply model with sticky prices.

Taylor (1979) shows that there is a permanent tradeoff between the volatility of the output gap and the volatility of inflation. Although a number of papers argue that the so-called Taylor curve is a policy menu, Friedman (2006) points out that it is more likely to serve as an efficiency locus that can be used to gauge the appropriateness of monetary policy. Using data from 1875 onward, we examine the efficiency of U.S. monetary policy by measuring the orthogonal distance between the observed volatilities of the output gap and inflation from the Taylor curve. In addition, we identify time periods in which the variability of the U.S. economy changed by observing shifts in this efficiency frontier. *Corresponding author.JEL classifications: E31, E58, C32