Resource Price Interconnections and the Impact of Geopolitical Shocks Using Granger Causality: A Case Study of Ukraine–Russia Unrest

Eirini Kostaridou, Nikolaos Siatis and Eleni Zafeiriou ()
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Eirini Kostaridou: Department of Agricultural Development, School of Agricultural Science and Forestry, Democritus University of Thrace, 68200 Orestiada, Greece
Nikolaos Siatis: Independent Researcher, 16344 Ilioupoli, Greece
Eleni Zafeiriou: Department of Agricultural Development, School of Agricultural Science and Forestry, Democritus University of Thrace, 68200 Orestiada, Greece

JRFM, 2024, vol. 17, issue 6, 1-20

Abstract: Political events significantly impact economic indices, including agricultural commodities. While Granger causality is a well-established method for analyzing interdependencies between time series data, its traditional application can be challenging to interpret across multiple periods. This research enhances the Granger causality method to quantify changes in the interlinkages among variables over time, offering a more intuitive framework for analyzing how political events affect economic indices. The proposed method involves conducting Granger causality tests across different periods, forming vectors from the results to capture transitions from Granger-causing to non-Granger-causing variables. These vector amplitudes provide quantitative measures of changes with explanatory power over time. The dataset includes eight variables over a decade, focusing on the following major geopolitical events: the Russian occupation of Crimea in 2014 and the invasion of Ukraine in 2022, with an intermediate “no-shocks” period as the reference. The results show significant changes in the interlinkages among the variables during crisis periods compared to stable periods. This enhanced method provides valuable insights, informing trading strategies and risk management during periods of geopolitical instability. This innovative approach offers a novel tool for market participants to better understand and respond to economic shocks caused by political events.

Keywords: Granger causality test; price shock; commodity; stock index; exchange rates; oil; gold; wheat (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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