Dynamic spillover between commodities and commodity currencies during United States Q.E.

Pick Schen Yip, Robert Brooks, Hung Xuan Do

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper comprehensively discusses the dynamic relationship between commodities and commodity currencies, particularly during the U.S. quantitative easing (QEs), by integrating the generalized spillover index into a fractionally integrated VAR (FIVAR) model. Our empirical analyses reach the following conclusions. First, the static return and volatility spillovers analyses show that the Food is the only net receiver among all the commodity price indices. Second, the dynamic total return and volatility spillover accelerated growth in term of the index by roughly between 15 and 25% for four regional groups during the initiation of the QE1 and subsequently remained across the first two rounds of the U.S. QE. Nevertheless, both the total return and volatility spillover declined in the midst of the QE3 as the U.S. Federal Reserve signaled the QE tapering due to the anticipated U.S. economic recovery. Third, the Energy and Metals components were the largest net transmitters of return and volatility spillovers during the U.S. QEs. A possible interpretation is that demand for energy and metals increase associated with an increase in economic activity that is triggered by the U.S. QEs. Last, almost all the sample commodity currencies acted as net receivers of return and volatility spillovers during the U.S. QEs, supporting the pass-through of commodities to commodity currencies.

Original languageEnglish
Pages (from-to)399-410
Number of pages12
JournalEnergy Economics
Volume66
DOIs
Publication statusPublished - 1 Aug 2017

Keywords

  • Commodity currencies
  • Commodity markets
  • FIVAR
  • Quantitative easing
  • Static and dynamic spillovers

Cite this

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title = "Dynamic spillover between commodities and commodity currencies during United States Q.E.",
abstract = "This paper comprehensively discusses the dynamic relationship between commodities and commodity currencies, particularly during the U.S. quantitative easing (QEs), by integrating the generalized spillover index into a fractionally integrated VAR (FIVAR) model. Our empirical analyses reach the following conclusions. First, the static return and volatility spillovers analyses show that the Food is the only net receiver among all the commodity price indices. Second, the dynamic total return and volatility spillover accelerated growth in term of the index by roughly between 15 and 25{\%} for four regional groups during the initiation of the QE1 and subsequently remained across the first two rounds of the U.S. QE. Nevertheless, both the total return and volatility spillover declined in the midst of the QE3 as the U.S. Federal Reserve signaled the QE tapering due to the anticipated U.S. economic recovery. Third, the Energy and Metals components were the largest net transmitters of return and volatility spillovers during the U.S. QEs. A possible interpretation is that demand for energy and metals increase associated with an increase in economic activity that is triggered by the U.S. QEs. Last, almost all the sample commodity currencies acted as net receivers of return and volatility spillovers during the U.S. QEs, supporting the pass-through of commodities to commodity currencies.",
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Dynamic spillover between commodities and commodity currencies during United States Q.E. / Yip, Pick Schen; Brooks, Robert; Do, Hung Xuan.

In: Energy Economics, Vol. 66, 01.08.2017, p. 399-410.

Research output: Contribution to journalArticleResearchpeer-review

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