EconPapers    
Economics at your fingertips  
 

Does the U.S. economic policy uncertainty connect financial markets? Evidence from oil and commodity currencies

Claudiu Albulescu (), Riza Demirer (), Ibrahim Raheem () and Aviral Tiwari ()

Energy Economics, 2019, vol. 83, issue C, 375-388

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.

Keywords: Economic policy uncertainty; Oil-currency nexus; Nonlinear causality; Frequency domain; Volatility spillover (search for similar items in EconPapers)
JEL-codes: Q41 F31 F42 C14 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988319302452
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:83:y:2019:i:c:p:375-388

DOI: 10.1016/j.eneco.2019.07.024

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

 
Page updated 2021-04-16
Handle: RePEc:eee:eneeco:v:83:y:2019:i:c:p:375-388