Dynamic spillovers among global oil shocks, economic policy uncertainty, and inflation expectation uncertainty under extreme shocks

Yi-Shuai Ren, Tony Klein, Yong Jiang, Chao-Qun Ma and Xiao-Guang Yang

Journal of International Financial Markets, Institutions and Money, 2024, vol. 91, issue C

Abstract: This study explores the quantile connectedness between United States (U.S.) economic policy uncertainty (EPU), global structural oil shocks, and U.S. inflation expectations uncertainty (IEU) under extreme shocks using a connectedness method based on the quantile VAR model. We find that the total connectedness index (TCI) exhibits a U-shaped pattern that varies with the conditional quantiles of variables, demonstrating that the spillover effect under extreme market conditions is much greater than under regular market conditions. Further proven that the spillover effect in the extreme upward state is stronger than in the extreme downward state. Moreover, the dynamic TCI is heterogeneous over time and economic-event dependent, specifically affected by COVID-19 epidemic. IEU is the largest net receiver of spillover effects among variables and hence is more susceptible to EPUs and oil shocks. Finally, although there is significant heterogeneity in the spillover effects of different EPUs and structural oil price shocks, overall, EPUs influence the IEU more than global oil shocks.

Keywords: Inflation expectations uncertainty; Economic policy uncertainty; Global structural oil shocks; Dynamic spillovers; Quantile connectedness method (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:91:y:2024:i:c:s1042443124000179

DOI: 10.1016/j.intfin.2024.101951

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