The Spillover Effect from Oil and Gas Prices: Evidence of Energy Shocks from Diebold and Yilmaz Index

Abstract

The current study contributes to the current debate on the energy-growth literature spillovers between crude prices, oil prices, and natural gas liquid composite prices. To this end, the recent novel Diebold and Yilmaz (2012) spillover index is utilized for daily realized data from January 2009 to October 31, 2019. The Diebold and Yilmaz index is employed given its uniqueness to highlight the following directional spillovers, total spillovers, pairwise spillover, and net spillover for the outlined variables. Further empirical investigation to accounts for both secular and cyclical properties is examined within the sampled framework. The study empirical results show a total spillover effect of 13.80% such that the contribution of shock from others is highest for liquefied natural gas (NGLC) price (43.2). The contribution of shocks to Brent price (7.5) and WTI price (3.0) was also received from others. Interestingly, the Brent price is observed to contribute the highest shock to others (41.4) considering the global adoption of the Brent crude oil as against the WTI which also contributes a shock of 12.9 to others. Based on these findings, several policy prescriptions were presented in the concluding section.