Examining spillovers and connectedness among commodities, inflation, and uncertainty: A quantile-VAR framework

Abstract

This paper explores dynamic interactions and connectedness between inflation, commodities, and economic and monetary policy uncertainty during various market phases between 1985 and 2022, developing upon the innovative quantile-VAR methodology. Results reveal that inflation exhibits strong interlinkages with money supply, as would be expected, along with the price of gold during periods of low-price levels, while presenting a strong positive relationship with both oil valuations and the money supply during periods representative of moderate or average pricing behaviour. Moreover, inflation is identified to be a receiver of direct influence and broad connectedness, especially during the Global Financial Crisis and during episodes of US-based quantitative easing programmes, while exhibiting even more pronounced effects during the COVID-19 pandemic. Money supply is identified to be the most receptive to overall external influence from the selected variables. Furthermore, economic policy uncertainty is identified as the strongest source of influence, with effects surpassing that of monetary policy uncertainty. Market risk is identified to possess the strongest effects at the highest quantiles. This study provides insight into the interconnectedness of the real economy and financial markets across various economic conditions.