Climate policy uncertainty and world renewable energy index volatility forecasting

Challenges for volatility forecasts of US fossil energy spot markets during the COVID-19 crisis

“…If the high-frequency information of daily prices is transformed into monthly comprehensive information, then a large amount of effective information will be lost, which will also bias the parameter estimation and model prediction ( Engle et al, 2013 ; Engle & Rangel, 2008 ). Second, many studies have confirmed that these exogenous factors can have long-term effects on asset price series volatility ( Salisu & Gupta, 2021 ; Li, Wei, et al, 2022 ; Liang, Umar, et al, 2022 ; Wang, Wu, et al, 2022 ) and the GARCH-MIDAS framework can model this long-run effect more efficiently by separating the conditional variance into long-run components and short-term fluctuations.…”

“…In addition, motivated by Baker et al (2016) , Baumeister et al (2022) , Caldara and Iacoviello (2022) , and Baumeister and Hamilton (2019) , we mainly employ four indicators to capture changes in various aspects of global conditions, namely, the global economic policy uncertainty index, global economic conditions index, geopolitical risk index, and world industrial production index. A great number of works have put forward strong evidence of the significant relationship between energy markets and exogenous indicators, including uncertainty indices ( Hong et al, 2022b ; Li, Liang, et al, 2022 ; Liang et al 2020 , 2021 ), climate-related indicators ( Considine, 2000 ; Hong et al, 2022c ; Liang, Umar, et al, 2022 ) and macroeconomic fundamentals ( Doroodian & Boyd, 2003 ; Taghizadeh-Hesary et al, 2016 ; Lacheheb & Sirag, 2019 ). One of these branches of research has focused on crude oil and natural gas markets, while little attention has been given to gasoline and heating oil markets ( Olanipekun et al, 2019 ; Olubusoye et al, 2021 ; Al-Thaqeb et al, 2022 ).…”

“…At the same time, given the geopolitical risk (GPR) posed by the COVID-19 outbreak, we are also curious of whether this risk will affect the US fossil energy market. In addition, in the current period of energy transformation and the rapid development of low-carbon industries, some new and renewable energy sources have received more attention than traditional fossil energy sources ( Hong et al, 2022b ; Liang, Umar, et al, 2022 ). However, fossil fuels are still raw materials for industrial production that provide the main power for the production process, thus playing an irreplaceable role in industrial production ( Li, Liang, et al, 2022 ; Wang, Ma, et al, 2022 ).…”

Evaluating the Importance of Monetary Policy Uncertainty: The Long- and Short-Term Effects and Responses

“…For example, in anticipatory planning, central banks may become passive in formulating policies because of unexpected macroeconomic changes, which will cause considerable uncertainty to the financial market (Ugurlu-Yildirim et al, 2021). In addition, the timing of policy decisions and their potential impact, in particular, have a greater impact on investors and financial institutions, when they adjust their portfolios (Kurov & Stan, 2018;Liang et al, 2022). Therefore, monetary policy uncertainty leads to a series of movements in financial markets or other aspects, which will further affect other policy implementations, especially in certain extreme circumstances (Friedman, 2015).…”

“…Additionally, unlike previous studies, they focus further on the uncertainty generated by different economic policy changes, and then construct a novel branch of indices that can capture these categorical economic policy uncertainties (CEPUs), including monetary policy uncertainty (MPU). Subsequently, this EPU series has received increased attention (Al-Thaqeb & Algharabali, 2019;Bonaime et al, 2018;Guo et al, 2022;Liang et al, 2022). Based on their contributions and the consideration of the important role of monetary policy, we cannot pay attention only to the uncertainty originating from monetary policy and other categorical economic policies, but also try our best to fully understand the relationship between MPU and CEPUs.…”