ABSTRACT
Our research examines connectedness landscape and the dynamic spillovers of volatility and returns in the network comprising eleven agricultural commodities and US shadow short rate in a quality of inflation indicator, observed in monetary policymaking. We use daily data from November 2000 to May 2021. We document monetary policy as a net transmitter of spillover for both return and volatility of agricultural commodities. We find significant volatility connectedness among agricultural commodities. The connectedness is shown to be of a time-varying nature, exhibiting considerable increases during periods of market turmoil. The results of this paper provide relevant insights into the interrelations of US monetary policy and agricultural commodity prices, being, hence, potentially useful for commodity investors, brokers and dealers, as well as for market regulators designing policy solutions for financial stability enhancements.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 We acknowledge the comment of an anonymous referee here.
2 The connectedness approach and its modifications are widely used in finance literature for various asset classes (see Balcilar, Gabauer, and Umar Citation2021; Umar, Riaz, and Zaremba Citation2021d, Citation2021e; Umar, Yousaf, and Aharon Citation2021f; Malik and Umar Citation2019; Aharon, Umar, and Vo Citation2021; Umar, Riaz, and Aharon Citation2022b).
3 The codes for estimation are readily available in the form of libraries for various econometric programming languages such as Matlab and R.
Umar, Z., Y. Riaz, and A. Zaremba. 2021d. “Patterns of Spillover in Energy, Agricultural, and Metal Markets: A Connectedness Analysis for Years 1780-2020.” Finance Research Letters 43: 101999. doi:https://doi.org/10.1016/j.frl.2021.101999. Umar, Z., Y. Riaz, and A. Zaremba. 2021e. “Spillover and Risk Transmission in the Components of the Term Structure of Eurozone Yield Curve.” Applied Economics 53 (18): 2141–2157. doi:https://doi.org/10.1080/00036846.2020.1856322. Umar, Z., I. Yousaf, and D. Y. Aharon. 2021f. “The Relationship Between Yield Curve Components and Equity Sectorial Indices: Evidence from China.” Pacific Basin Finance Journal 68: 101591. doi:https://doi.org/10.1016/j.pacfin.2021.101591. Malik, F., and Z. Umar. 2019. “Dynamic Connectedness of Oil Price Shocks and Exchange Rates.” Energy Economics 84. doi:10.1016/j.eneco.2019.104501. Aharon, D. Y., Z. Umar, and X. V. Vo. 2021. “Dynamic Spillovers Between the Term Structure of Interest Rates, Bitcoin, and Safe-Haven Currencies.” Financial Innovation 7 (1). doi:10.1186/s40854-021-00274-w. Umar, Z., Y. Riaz, and D. Y. Aharon. 2022b. “Network Connectedness Dynamics of the Yield Curve of G7 Countries.” International Review of Economics and Finance 79. doi:10.1016/j.iref.2022.02.052. Additional information
Funding
This work was supported by FCT, I.P., the Portuguese national funding agency for science, research and technology, under the Project UIDB/04521/2020. This research is partly funded by University of Economics Ho Chi Minh City, Vietnam.
https://orcid.org/0000-0002-0425-2665
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