An application of QVAR dynamic connectedness between geopolitical risk and renewable energy volatility during the COVID-19 pandemic and Russia-Ukraine conflicts

Abstract

The article is the first to employ a quantile vector autoregression (QVAR) to identify the connectedness between geopolitical risks and energy volatility from January 1, 2015, to April 03, 2023. This paper is also the first to examine the mediating roles of uncertain events like the COVID-19 pandemic and the Russia-Ukraine conflict on this interlinkage. Dynamic connectedness is 29% in the short term and approximately 6% in the long term. Dynamic net total directional connectedness over a quantile also indicates that connectedness is very intense for both highly positive changes (above the 80% quantile) and negative changes (below the 20% quantile). In the short term, the geopolitical risks remained net receivers of shock, but they turned into net shock transmitters during 2020 in the long term. Clean energy, in the short term, transmits shocks to other markets, and it plays the same role in the long term. Crude oil was a net receiver of shocks during COVID-19 and turned into a net transmitter of shocks in early 2022. Dynamic net pairwise directional connectedness over a quantile suggests that uncertain events like the COVID-19 epidemic or the Russia-Ukraine conflict influence the dynamic interlinkages between geopolitical risks and renewable energy volatility and change their roles in the designed system. These findings are critical since they help authorities develop effective policies to lessen the vulnerabilities of these indicators and minimize how widely the renewable and non-renewable energy market is exposed to risk or uncertainty.