In this study, we enhance the dynamic connectedness measures originally introduced by Diebold and Yılmaz (2012, 2014) with a time-varying parameter vector autoregressive model (TVP-VAR) which predicates upon a time-varying variance-covariance structure. This framework allows to capture possible changes in the underlying structure of the data in a more flexible and robust manner. Specifically, there is neither a need to arbitrarily set the rolling-window size nor a loss of observations in the calculation of the dynamic measures of connectedness, as no rolling-window analysis is involved. Given that the proposed framework rests on multivariate Kalman filters, it is less sensitive to outliers. Furthermore, we emphasise the merits of this approach by conducting Monte Carlo simulations. We put our framework into practice by investigating dynamic connectedness measures of the four most traded foreign exchange rates, comparing the TVP-VAR results to those obtained from three different rolling-window settings. Finally, we propose uncertainty measures for both TVP-VAR-based and rolling-window VAR-based dynamic connectedness measures.
In this paper we examine the extent of time-varying correlations among stock markets returns, stock market implied volatility and policy uncertainty based on a newly introduced uncertainty index by Baker et al. (2012). We find that the dynamic correlations of policy uncertainty and stock market returns are consistently negative, apart from the period during the latest global financial crisis, wherein correlations became positive. Furthermore, an increase in the volatility of the stock market and the policy uncertainty dampens stock market returns, while it increases policy uncertainty. Finally, aggregate demand oil price shocks and US recessions significantly affect the correlation between policy uncertainty and stock market returns.
This study examines the dynamic relationship between changes in oil prices and the economic policy uncertainty index for a sample of both net oil-exporting and net oil-importing countries over the period 1997:01-2013:06. To achieve that, an extension of the Yilmaz (2009, 2012) dynamic spillover index based on structural decomposition is employed. The results reveal that economic policy uncertainty (oil price shocks) responds negatively to aggregate demand oil price shocks (economic policy uncertainty shocks). Furthermore, during the Great Recession of 2007-2009, total spillovers increase considerably, reaching unprecedented heights. Moreover, in net terms, economic policy uncertainty becomes the dominant transmitter of shocks between 1997 and 2009, while in the post-2009 period there is a significant role for supply-side and oil specific demand shocks, as net transmitters of spillover effects. These results are important for policy makers, as well as, investors interested in the oil market.
In this study, we examine the dynamic relationship between tourism growth and economic growth, using a newly introduced spillover index approach. Based on monthly data for 10 European countries over the period 1995-2012, our analysis reveals the following empirical regularities. First, the tourism-economic growth relationship is not stable over time in terms of both magnitude and direction, indicating that the tourism-led economic growth (TLEG) and the economic-driven tourism growth (EDTG) hypotheses are time-dependent. Second, the aforementioned relationship is also highly economic event-dependent, as it is influenced by the Great Recession of 2007 and the ongoing Eurozone debt crisis that began in 2010. Finally, the impact of these economic events is more pronounced in Cyprus, Greece, Portugal and Spain, which are the European countries that have witnessed the greatest economic downturn since 2009. Plausible explanations of these results are provided and policy implications are drawn.
In this study we examine the dynamic interrelationship in the output-energyenvironment nexus by applying panel vector autoregression (PVAR) and impulse response function analyses to data on energy consumption (and its subcomponents), carbon dioxide emissions and real GDP in 106 countries classified by different income groups over the period 1971-2011. Our results reveal that the effects of the various types of energy consumption on economic growth and emissions are heterogeneous on the various groups of countries. Moreover, causality between total economic growth and energy consumption is bidirectional, thus making a case for the feedback hypothesis. However, we cannot report any statistically significant evidence that renewable energy consumption, in particular, is conducive to economic growth, a fact that weakens the argument that renewable energy consumption is able to promote growth in a more efficient and environmentally sustainable way. Finally, in analysing the case for an inverted U-shaped EKC, we find that the continued process of growth aggravates the greenhouse gas emissions phenomenon. In this regard, we cannot provide any evidence that developed countries may actually grow-out of environmental pollution. In the light of these findings, the efficacy of recent government policies in various countries to promote renewable energy consumption as a means for sustainable growth is questioned. Put differently, there seems to be a moral dilemma, between high economic growth rates and unsustainable environment and low or zero economic growth and environmental sustainability.
This paper investigates the volatility spillovers and co-movements among oil prices and stock prices of major oil and gas corporations over the period between 18th June 2001 and 1st February 2016. To do so, we use the spillover index approach by Diebold and Yilmaz (2009, 2012, 2014 and the dynamic correlation coefficient model of Engle ( 2002) so as to identify the transmission mechanisms of volatility shocks and the contagion of volatility among oil prices and stock prices of oil and gas companies, respectively. Given that volatility transmission across oil and major oil and gas corporations is important for portfolio diversification and risk management, we also examine optimal weights and hedge ratios among the aforementioned series. Our results point to the existence of significant volatility spillover effects among oil and oil and gas companies' stock volatility. However, the spillover is usually unidirectional from oil and gas companies' stock volatility to oil volatility, with BP, CHEVRON, EXXON, SHELL and TOTAL being the major net transmitters of volatility to oil markets. Conditional correlations are positive and time-varying, with those between each of the aforementioned companies and oil being the highest. Finally, the diversification benefits and hedging effectiveness based on our results are discussed.
This paper examines return co-movements and volatility spillovers between major exchange rates before and after the introduction of euro. Dynamic correlations and VAR-based spillover index results suggest significant return co-movements and volatility spillovers, however, their extend is, on average, lower in the post-euro period. Co-movements and spillovers are positively associated with extreme episodes and US dollar appreciations. The euro (Deutsche mark) is the dominant net transmitter of volatility, while the British pound the dominant net receiver of volatility in both periods. Nevertheless, cross-market volatility spillovers are bidirectional, and the highest spillovers occur between European markets.
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