Dynamic Spillover between Commodities and Commodity Currencies During United States Q.E.

45 Pages Posted: 20 Jul 2017

See all articles by Pick Schen Yip

Pick Schen Yip

Tunku Abdul Rahman University (UTAR); University of Malaya (UM) - Faculty of Economics & Administration (FEA)

Robert D. Brooks

Monash University; Financial Research Network (FIRN)

Hung Xuan Do

Massey University, Albany campus; University of Technology, Sydney

Date Written: July 16, 2017

Abstract

This paper comprehensively discusses the dynamic relationship between commodities and commodity currencies, particularly during the U.S. quantitative easing (QEs), by integrating the generalized spillover index into a fractionally integrated VAR (FIVAR) model. Our empirical analyses reach the following conclusions. First, the static return and volatility spillovers analyses show that the Food is the only net receivers among all the commodity price indices. Second, the dynamic total return and volatility spillover accelerated growth in term of the index by roughly between 15 and 25% for four regional groups during the initiation of the QE1 and subsequently remained across the first two rounds of the U.S. QE. Nevertheless, both the total return and volatility spillover declined in the midst of the QE3 as the U.S. Federal Reserve signaled the QE tapering due to the anticipated U.S. economic recovery. Third, the Energy and Metals components were the largest net transmitters of return and volatility spillovers during the U.S. QEs. A possible interpretation is that demand for energy and metals increase associated with an increase in economic activity that is triggered by the U.S. QEs. Last, almost all the sample commodity currencies acted as net receivers of return and volatility spillovers during the U.S. QEs, supporting the pass-through of commodities to commodity currencies.

Keywords: Quantitative Easing, Commodity Markets, Commodity Currencies, Static and Dynamic Spillovers, FIVAR

JEL Classification: C32, C5, E52, F31

Suggested Citation

Yip, Pick Schen and Brooks, Robert Darren and Do, Hung Xuan, Dynamic Spillover between Commodities and Commodity Currencies During United States Q.E. (July 16, 2017). Energy Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3003639

Pick Schen Yip

Tunku Abdul Rahman University (UTAR) ( email )

Sungai Long Campus Lot PT 21144
Bandar Sg. Long, Cheras, Selangor D.E.,
Bandar Sungai Long, 43000
Malaysia

University of Malaya (UM) - Faculty of Economics & Administration (FEA) ( email )

University of Malaya
Kuala Lumpur, Wilayah Persekutuan 50603
Malaysia

Robert Darren Brooks

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Hung Xuan Do (Contact Author)

Massey University, Albany campus ( email )

Auckland
New Zealand
+64 92136160 (Phone)
+64 92136160 (Fax)

HOME PAGE: http://www.massey.ac.nz/massey/expertise/profile.cfm?stref=972450

University of Technology, Sydney ( email )

PO Box 123
Broadway, 2007
Australia

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