Dynamic spillovers and connectedness between oil returns and policy uncertainty

Abstract

ABSTRACT This article investigates the dynamic connectedness and spillover effects between category policy uncertainty and WTI crude oil returns for oil-importing countries. To overcome the shortcomings of the traditional rolling-window method and obtain rigorous results, we adopt the TVP-VAR-based connectedness approach, apply it to full samples, and then estimate the dynamic spillovers between the series. Regarding the whole sample, the results reveal that economic policy uncertainty is as a net transmitter, and by employing four categorical policy uncertainty indices we reach the same conclusions. In particular, spillovers of fiscal policy uncertainty on crude oil returns are the most dominant ones, followed by exchange rate policy uncertainty, then monetary policy uncertainty, and finally trade policy uncertainty. And it is noteworthy that the network plots are employed by our article, which provides clearer evidence for the connectedness between variables. On a final note, Brent crude oil returns are utilized to increase the robustness of our conclusion.