Elsevier

Resources Policy

Volume 74, December 2021, 102238
Resources Policy

Economic policy uncertainty and dynamic spillover among precious metals under market conditions: Does COVID-19 have any effects?

https://doi.org/10.1016/j.resourpol.2021.102238Get rights and content

Highlights

  • We study the impact of Economic Policy uncertainty on the connectedness among precious metals due to COVID-19 pandemic.

  • Quantile-VAR model is used to capture the left and right tails of the distributions.

  • Total spillover index (TCI) varies across quantiles and increases widely during COVID-19 period.

  • Gold still plays a dominant role as a “safe-haven” asset in hedging market uncertainty.

  • Silver, Platinum and Palladium show heterogeneous responses to the COVID-19 pandemic.

Abstract

The paper examines the impact of Economic Policy Uncertainty (EPU) on the dynamic connectedness among the precious metals before and over the COVID-19 pandemic period, using the Quantile-VAR method. This approach allows us to capture the left and right tails of the distributions of the precious metals returns corresponding to spillover effects under different market conditions: the bear, normal, and bull market states among these assets. We find that the total spillover index (TCI) varies across quantiles and increases widely during extreme market conditions, with a noticeable influence of the recent COVID-19 pandemic. Then, studying the impact of the economic uncertainty on the connectedness among the four precious metals, we find that gold still plays a dominant “safe-haven” asset in hedging market uncertainty, with other precious metals showing heterogeneous responses to the presence of the COVID-19 pandemic. Moreover, we argue that the COVID-19 pandemic significantly affects the dynamic connectedness among precious metals and the relationship between economic policy uncertainty and dynamic connectedness.

Keywords

Economic policy uncertainty
Connectedness
Quantile-VAR
Precious metals
COVID-19

JEL classification

C14
C32
G11
G15 G14

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