The impact of uncertainty shocks on energy transition metal prices

Abstract

We study whether uncertainty shocks are transmitted to energy transition metal (ETM) prices. Using a quantile vector autoregression model, we assess the impact on ETM price changes of shocks arising from economic policy uncertainty, climate policy uncertainty, geopolitical risk, financial market uncertainty, and oil price uncertainty. We document that the impact of uncertainty is U-shaped across ETM price quantiles, with modest effects in the intermediate quantiles and stronger impacts in the extreme, but mainly upper, quantiles. Climate policy uncertainty and geopolitical risk are the main uncertainty drivers in the extreme quantiles, while financial- and oil-related uncertainties have more pervasive effects in the intermediate quantiles. This evidence has implications for policymakers regarding the implementation cost of transition policies that generate uncertainties, and for investors in ETM futures markets regarding diversification and tail risk management decisions.