Oil-Price Volatility and Macroeconomic Spillovers in Central and Eastern Europe: Evidence from a Multivariate GARCH Model

Open access

Abstract

Recent commodity price declines have added to worldwide macroeconomic risk, which has had serious effects on both commodity exporters and manufacturers that use oil and raw materials. These effects have been keenly felt in Central and Eastern Europe—particularly in Russia, but also in European Union member states. This study tests for spillovers among commodity-price and macroeconomic volatility by applying a VAR(1)-MGARCH model to monthly time series for eight CEE countries. Overall, we find that oil prices do indeed have effects throughout the region, as do spillovers among exchange rates, inflation, interest rates, and output, but that they differ from country to country—particularly when different degrees of transition and integration are considered. While oil prices have a limited impact on the currencies of Russia and Ukraine, they do make a much larger contribution to the two countries’ macroeconomic volatility than do spillovers among the other macroeconomic variables.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • Beck S. (2001). Autoregressive conditional heteroscedasticity in commodity spot prices. Journal of Applied Econometrics 16(2) 115–132.

  • Bernard J.-T. Khalaf L. Kichian M. & Mcmahon S. (2008). Forecasting commodity prices: GARCH jumps and mean reversion. Journal of Forecasting 27(4) 279-291.

  • Bollerslev T. (1986). Generalized autoregressive conditional heteroscedasticity. Journal of Econometrics 31 307-327.

  • Brooks C. & Prokopczuk M. (2011). The dynamics of commodity prices. Quantitative Finance 13(4) 527-542.

  • Bui N. & Pippenger J. (1990). Commodity prices exchange rates and their relative volatility. Journal of International Money and Finance 9(1) 3-20.

  • Cashin P. Céspedes L. & Sahay R. (2002). Keynes cocoa and copper: In search of commodity currencies. IMF Working Paper Series WP/02/223.

  • Céspedes L.F. and Velasco A. (2012). Macroeconomic performance during commodity price booms and busts. IMF Economic Review 60(4) 570-599.

  • Chen Y.-C. Rogoff K. & Rossi B. (2010). Can exchange rates forecast commodity prices? Quarterly Journal of Economics 125(3) 1145-1194.

  • Choi K. & Hammoudeh S. (2010). Volatility behavior of oil industrial commodity and stock markets in a regime-switching environment. Energy Policy 38(8) 4388-4399.

  • Dahl C.M. & Iglesias E.M. (2009). Volatility spillovers in commodity spot prices: New empirical results. Economic Modelling 26(3) 601-607.

  • Deaton A. (1999). Commodity prices and growth in Africa. Journal of Economic Perspectives 13(3) 23-40.

  • Ding L. & Vo M. (2012). Exchange rates and oil prices: A multivariate stochastic volatility analysis. The Quarterly Review of Economics and Finance 52(1) 15-37.

  • Engle R.F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of the United Kingdom inflation. Econometrica 50 377-403.

  • Hegerty S.W. (2011). Interest-Rate volatility and volatility spillovers in emerging Europe. International Review of Applied Economics 25(5) 599-614.

  • Hegerty S.W. (2012). Output volatility and its transmission in transition economies: Implications for European integration. Journal of Economic Integration 27(4) 520-536.

  • Mensi W. Beljid M. Boubaker A. & Managi S. (2013). Correlations and volatility spillovers across commodity and stock markets: Linking energies food and gold. Economic Modelling 32 15–22.

  • Ocran M. & Biekpe N. (2007). The role of commodity prices in macroeconomic policy in South Africa. South African Journal of Economics 75(2) 213-220.

  • Smith C. E. (1999). Exchange rate variation commodity price variation and the implications for international trade. Journal of International Money and Finance 18(3) 471-491.

Search
Journal information
Metrics
All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 236 122 3
PDF Downloads 106 60 2