Portfolio balance effect of the U.S. QE between commodities and financial assets in commodity-exporting countries
Pick Schen Yip,
Wee Yeap Lau and
Robert Brooks
Authors registered in the RePEc Author Service: Robert Brooks and
Robert E Brooks ()
The North American Journal of Economics and Finance, 2024, vol. 74, issue C
Abstract:
This study analyses the portfolio balance channel of the U.S. quantitative easing (QE) by assessing the dynamic spillover effect between commodities and financial assets in commodity-exporting countries during QE. This study integrates the generalized spillover index initially proposed by Diebold and Yilmaz (2012) for the fractional integration VAR model. Then, we estimate the multivariate framework of the Westerlund and Narayan (2015) (WN)-based predictive model to quantify the effect of the portfolio balance channel on the net pairwise spillover index from the U.S. to other countries. Our results show: first, for bond yields, that Asian and Pacific bond yields are impacted by both commodity price indices returns and the U.S. bond yields across the sample periods. However, mixed evidence is found for both Latin America and Others; second, for equity, dynamic net return spillovers contribute mixed evidence across regional groups during QE. The diverse results are partly explained by the average percentage of commodity exports to total exports of the country and the degree of close interrelationship between countries. Additionally, dynamic return spillover analyses show that most foreign exchange returns are negative net spillovers during QE, supporting the behavior of “commodity currencies.” Last, the WN-based predictability models show pronounced differences in predictability across the selected commodity-exporting countries.
Keywords: Quantitative easing; Portfolio balance channel; Dynamic spillovers; FIVAR model; Predictive regression (search for similar items in EconPapers)
JEL-codes: C32 C5 E52 G15 O16 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:74:y:2024:i:c:s1062940824001505
DOI: 10.1016/j.najef.2024.102225
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