Connectedness of commodity, exchange rate and categorical economic policy uncertainties - Evidence from China

This paper provides a fresh perspective to explore the network correlations among commodity, exchange rate, and categorical economic policy uncertainties (EPU) in China. We try to contribute to the literature by examining the spillover mechanism with a relatively novel connectedness network using the monthly data over the period between June 2006 and January 2021. Our results suggest that prior to the recession, China's commodity price is subject to greater spillovers from the exchange rate than recessions. The domestic commodity prices are more sensitive to monetary policy uncertainty and fiscal policy uncertainty. The occurrence of COVID-19 revises the dominance in the system from monetary policy uncertainty and fiscal policy uncertainty to trade policy uncertainty.

Automated summary

This study explores the network correlations among commodity, exchange rate, and economic policy uncertainties in China using monthly data. It finds that before economic recessions, China's commodity prices are more affected by exchange rate spillovers, while after the outbreak of COVID-19, the dominance shifts to trade policy uncertainty.