Does the U.S. economic policy uncertainty connect financial markets? Evidence from oil and commodity currencies
By Claudiu Tiberiu Albulescu, Riza Demirer, Ibrahim D. Raheem, Aviral Kumar Tiwari. Energy Economics, 2019
161 citations recorded by the source corpus.
Abstract We provide novel insight to the emerging literature on the role of U.S. monetary policy as a driver of a global financial cycle by examining the possible causal effect of U.S. economic policy uncertainty on the connectedness of crude oil and currency markets, using a sample of commodity currencies from advanced and emerging nations. A battery of linear and nonlinear Granger-based causality tests indicate the presence of a causal relationship between economic policy uncertainty and the connectedness of oil and currency markets, particularly at low frequencies and more significantly after the outburst of the global financial crisis. While crude oil generally serves as a net transmitter of shocks to currencies across all frequency bands, the spillover effects from oil are largely concentrated towards the G10 currencies of Australian and New Zealand dollar that are often used as investment currencies in global carry trade strategies. Overall, our findings suggest the presence of a significant pass-through effect of economic policy uncertainty via oil prices, spilling over to the currency market, in line with the emerging evidence that the monetary policy by the U.S. Fed serves as a major driver of a global financial cycle that describes patterns in global capital flows, credit activity and asset prices across financial markets.
Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment
View Paper: https://www.semanticscholar.org/paper/d630c6815a4bc796507f990a196cb8d9e5dd2df7
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Citations in the corpus
- Coronavirus and Oil Price Crash (2020, unknown): “A different approach is implemented by Albulescu et al. (2019) who show that the US EPU influences the connectedness between oil and currency markets.”
- How COVID-19 drives connectedness among commodity and financial markets: Evidence from TVP-VAR and causality-in-quantiles techniques (2020, background): “However, our findings run similar to the evidence provided by the study of Albulescu et al. (2019) which establishes that economic policy uncertainty drives volatility spillover in the oil and commodity currency markets.”