Dynamic Spillover Effect Between Oil Prices and Economic Policy Uncertainty in BRIC Countries: A Wavelet-Based Approach

ABSTRACT

In recent years, researchers have increasingly studied the interaction between the crude oil market and economic policy uncertainty (EPU). To have a deeper knowledge, this article examines the spillover effects between them from a multiscale perspective with a wavelet-based BEKK-GARCH method. The results show that the spillover effects between the Brent crude oil market and EPU in the BRIC countries are time-varying across different wavelet scales in terms of direction and strength. The mean spillover relationship between oil prices and EPU is weak in the short term but gradually strengthened toward the long term. Moreover, there are strong volatility spillover effects between oil prices and EPU in Brazil and Russia in the short and medium term.

KEY WORDS:

• BEKK-GARCH
• dynamic correlation
• multiscale analysis
• volatility spillover
• wavelet analysis

Supplementary material

Supplementary data can be accessed here

Notes

1. The results of BEKK-GARCH estimation meet the requirements.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71771206,71373009,71425002]; President’s Youth Foundation of the Institutes of Science and Development, Chinese Academy of Sciences [Y7X111Q01].