How does economic policy uncertainty connect with the dynamic spillovers between precious metals and bitcoin markets?

Abstract

In this paper, we examine the role of United States Economic Policy Uncertainty (US EPU) on the connectedness between bitcoin and precious metals using both dynamic spillover and nonparametric causality-in-quantiles approaches. First, using the time varying parameter vector autoregressions spillover test, we found that there is strong connectedness between the Bitcoin and precious metals markets. Second, BDS test shows that nonlinearity is a very crucial factor to be put into consideration when examining the causal effect of economic policy uncertainty on the interactions between Bitcoin and precious metals markets. Third, the non-parametric causality-in-quantile test confirms that the connectedness between the markets and economic policy uncertainty is stronger mostly around the median and higher quantiles. Thus, the connection between bitcoin and precious metals might not act as a hedge or safe haven against economic policy uncertainties especially around these periods. Our findings have pertinent policy implications for investors and markets analysts.