Asymmetric effects of financial volatility and volatility-of-volatility shocks on the energy mix

Rafaela Perez and Jesus Ruiz
Authors registered in the RePEc Author Service: Laurentiu Guinea

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: We examine the asymmetric effects of financial instability shocks and their volatility on the conventional and renewable energy mix. We utilize Chicago Board Options Exchange (CBOE) Volatility Index (VIX) and the Volatility-of-Volatility index (vVIX) in a nonlinear autoregressive distributed lag (NARDL) model to examine the short- and long-term asymmetry effects across energy mix in Europe, the US, and China. Furthermore, we examine the dynamic long-run asymmetry of financial instability shocks on the energy sector and how this relationship evolves over time. Our estimation indicate that the long-term effects over the energy mix are more significant than their short-term effects. The study found that the responses to the volatility of financial instability, vVIX, are different from the responses to financial instability itself, VIX. The impact is more noticeable on changes in the vVIX than on VIX. In the US, there is a higher inclination to adopt renewable energy during periods of lower volatility, whereas Europe tends to rely on natural gas when financial instability is high but decreases its use when volatility is low. China shows symmetrical responses for gas, oil, and coal but has asymmetrical responses for renewable energy, with a negative response to high financial stability and also negative response to high uncertainty volatility. Regarding dynamic asymmetry, we notice that for oil, the long-run asymmetry is similar in both Europe and the US, with the US showing a high level of stability. Similarly, coal demonstrates high stability in both Europe and the US, while China experienced a period of instability from 2017 to 2020. Moreover, in Europe, the stable periods for gas coincide with the unstable ones in the US. However, for renewable sources, the instability periods coincide for Europe and US, but China exhibits high stability in this regard.

Keywords: Asymmetries; Financial; Instability; Nardl; Renewable; Energy; Vix; Volatility-Of-Volatility (search for similar items in EconPapers)
JEL-codes: C12 C32 C58 G01 G13 G17 Q42 (search for similar items in EconPapers)
Date: 2023-03-17
New Economics Papers: this item is included in nep-ene, nep-env and nep-rmg
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Journal Article: Asymmetric effects of financial volatility and volatility-of-volatility shocks on the energy mix (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:36916

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