Asymmetric connectedness among regional green economies, carbon markets, and oil shocks

Waqas Hanif, Rim El Khoury, Mariya Gubareva and Tamara Teplova

International Review of Economics & Finance, 2025, vol. 103, issue C

Abstract: This study investigates spillovers among the US, Europe, and Asia green economies, carbon allowances and oil price shocks in 2010–2023. We segregate oil shocks in demand-, supply-, and risk-driven price movements. The TVP-VAR methodology is applied to model the dynamic interrelationships among the markets. Our static connectedness outcomes highlight a substantial role of the US and European green economy and the demand-driven shocks as emitters of innovations to other markets. It is found that European green economy is the main innovations contributor to global carbon allowances whereas the demand-driven oil shocks dominate in transmitting spillovers to others. We demonstrate that major economic events make connectedness increase. Our asymmetry analysis reveals a heightened susceptibility of the system to negative news, with the impacts of negative spillovers overcoming those of positive ones. The dynamics of spillovers emphasize how crucial it is to take into account both the time and the sign. Our research advances understanding of the complex relationships within the green-carbon-oil-shocks system. The results are potentially useful for risk managers and investors, as they allow the creation of effective risk management plans.

Keywords: Green economy; Carbon allowances; Oil price shocks; TVP-VAR model; Network connectedness; Pairwise spillovers; Asymmetric innovations transmission (search for similar items in EconPapers)
JEL-codes: C58 F37 G11 G14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025005799

DOI: 10.1016/j.iref.2025.104416

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