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Analysing the nexus between clean energy expansion, natural resource extraction, and load capacity factor in China: a step towards achieving COP27 targets
(Springer Science and Business Media B.V., 2024) Usman, Ojonugwa; Ozkan, Oktay; Adeshola, Ibrahim; Eweade, Babatunde Sunday
The excessive use of non-renewable energy in 21st-century economic growth has continued to hurt the environment by accumulating carbon dioxide and other greenhouse gases. However, promoting environmental sustainability requires expanding clean energy utilisation. In this study, we examine the effects of clean energy expansion and natural resource extraction on load capacity factor (LCF) in China from 1970 to 2018. Using the dynamic autoregressive distributed lag simulations approach, we extend the standard load capacity curve (LCC) hypothesis by incorporating clean energy expansion and natural resource extraction as main determinants of the LCF. The empirical outcomes reveal that economic expansion is, although positively associated with the LCF, but its squared term degrades the LCF. This confirms that the LCC hypothesis is not valid for China. Moreover, while clean energy expansion has a positive effect on the LCF, the effect of natural resource extraction is negative. These effects are stronger and statistically significant only in the long run. Therefore, this study highlights the potentials for a sustainable decarbonized economy in China by investing not only in clean energy sources but also efficiently use the available natural resources in the country.
Are impacts of renewable energy and globalization on carbon neutrality targets asymmetric in South Africa? A reconsideration using nonlinear ARDL approach
(Springer Science and Business Media Deutschland GmbH, 2022) Abu-Goodman, Maryam; Güngör, Hasan; Usman, Ojonugwa
In this paper, we deviate from the existing literature by disentangling the independent variables into their positive and negative changes to capture asymmetric and dynamic multiplier efects of renewable energy and globalization on carbon neutrality targets within the framework of the autoregressive distributed lag (ARDL) model. In doing this, the paper uses South African data for the period 1990 to 2018 and the results show that CO2 emissions respond diferently to the positive and negative shocks in renewable energy, globalization, and economic growth. The efect of a positive shock in economic growth is inelastic and positively related to CO2 emissions while a negative shock in economic growth has an elastic and negative efect on CO2 emissions. These results hold for both long-run and short-run periods. In the case of globalization, the positive shock increases CO2 emissions while the negative shock decreases CO2 emissions; although the long-run efect of a negative shock is elastic and insignifcant while the short-run negative shock exerts an inelastic and signifcant efect on CO2 emissions. Furthermore, both the upward and downward shocks in renewable energy consumption transmit a negative efect on CO2 emissions in the long-run and short-run periods. Therefore, the paper suggests among others that to efectively decarbonize the South African economy, the use of subsidies, tax credits, tax holidays, and a host of others on green energy activities need to be enhanced as incentives for promoting cleaner energy production and consumption.
Assessing the impact of resource efficiency, renewable energy R&D spending, and green technologies on environmental sustainability in Germany: Evidence from a Wavelet Quantile-on-Quantile Regression
(Elsevier, 2024) Özkan, Oktay; Eweade, Babatunde Sunday; Usman, Ojonugwa
One important challenge in the world today is how to reverse the growth of carbon dioxide emissions to save the planet from environmental degradation without putting economic growth at risk. Several measures and initiatives such as resource efficiency, green energy transition, energy technologies, emission control, etc. Have been adopted by several countries worldwide in order to mitigate CO2 emissions. This study investigates the impact of resource efficiency, renewable energy Research and Development (R&D) expenditures, and green technologies towards fostering environmental sustainability in Germany. Using quarterly data spanning from 1974 to 2019, the study applies the Wavelet Quantile-on-Quantile Regression (WQQR) approach. This method embeds a wavelet kernel into quantile-on-quantile regression to capture the time-varying coefficients. The empirical findings reveal a negative impact of resource efficiency, renewable energy R&D expenditures, and green technologies on energy-based carbon intensity. The results further reveal that, with the exception of green technologies, the negative effects of resource efficiency and renewable energy R&D expenditures are stronger in the middle quantiles. The study demonstrates the robustness of these results through the wavelet quantile regression analysis. Finally, the study offers valuable policy implications that align with the United Nations’ Sustainable Development Goals (SDGs) 7 and 13, aiming to achieve a sustainable environment.
Asymmetric effect of environmental cost of forest rents in the Guinean forest-savanna mosaic: The Nigerian experience
(Springer Science and Business Media Deutschland GmbH, 2023) Usman, Ojonugwa; Alola, Andrew Adewale; Usman, Monday; Uzuner, Gizem
Several studies have identified deforestation as a major cause of environmental degradation, but little is known about the asymmetric effect of the environmental cost of forest rents. To fill this gap, our study uses the nonlinear autoregressive distributed lag (NARDL) model and asymmetric causality test to examine the environmental implication of forest rents in the Guinean Forest-Savanna Mosaic of Nigeria over the period 1990:Q1 to 2016:Q4. The empirical results show that forest rents increase CO2 emissions when the shock to forest rents is positive and decreases CO2 emissions when the shock to forest rents is negative. The results further show evidence of asymmetric effects of crop production, fossil fuel energy consumption, and economic growth on CO2 emissions. Moreover, the effects of both positive and negative shocks in economic growth are elastic, suggesting that CO2 emissions respond in a larger magnitude to a 1% positive or negative shock in economic growth. While the positive shock to crop production and economic growth stimulates CO2 emissions, their negative shocks dampen CO2 emissions. In addition, the positive (negative) shocks to fossil energy consumption exert upward (downward) pressure on CO2 emissions. Furthermore, the asymmetric causality test divulges that a positive change in forest rents causes a negative change in CO2 emissions and a negative change in forest rents causes a positive change in CO2 emissions. Based on these findings, the study recommends the need for policymakers to formulate sound policies to protect the forests and transit toward clean energy consumption to minimize energy-related CO2 emissions in the country.
Dampening energy security-related uncertainties in the United States: The role of green energy-technology investment and operation of transnational corporations
(Elsevier, 2024) Usman, Ojonugwa; Iorember, Paul Terhemba; Ozkan, Oktay; Alola, Andrew Adewale
Several studies provide that the green energy transition is critical to attaining environmental sustainability. However, the extent to which investment in green energy technologies influence energy-related uncertainties is not well known. This study set out to investigate the effect of green energy-technology investment and operation of Transnational Corporations (TNCs) on the United States energy security uncertainties over the period 1974–2020. Applying econometric techniques using the Kernel-based regularized least squares (KRLS) and nonparametric multivariate quantile-on-quantile regression (MQQR), we show that green energy-technology investment dampens uncertainties related to energy security. The results also demonstrate that while eco nomic expansion is negatively associated with the United States’ energy security uncertainties, the operational behaviours of TNCs via direct investment by foreigners and trade openness amplify energy security uncertainty matrices. Furthermore, the effects of green energy-technology investment, operational behaviours of TNCs, economic expansion, and trade openness exhibit an inherent heterogeneity, leading to the asymmetric pattern in the distribution of the United States energy security-related uncertainties. Notably, these results are confirmed by the disaggregated models for energy security uncertainties with the exception of the environmental-related risks sub-index which dampens as a result of the operation of TNCs. Given these findings, the study suggests, among others, the need for government and policymakers to increase investment in renewable energy R&D technology to dampen energy security-related uncertainties and achieve a sustainable environment.
Digitalization and the environment: The role of information and communication technology and environmental taxes in European countries
(John Wiley and Sons Inc, 2023) Adeshola, Ibrahim; Usman, Ojonugwa; Agoyi, Mary; Awosusi, Abraham Ayobamiji; Adebayo, Tomiwa Sunday
This study examines the impacts of digitalization through information and communication technology (ICT) and environmental taxes on greenhouse gas (GHG) emissions in 23 European Union (EU) countries between 2000 and 2017. Using the Pooled Mean Group estimator, the empirical results provide evidence that ICT development and environmental taxes improve environmental sustainability while research and development investments and income per capita deteriorate environmental sustainability. Furthermore, the results based on the Dynamic Panel Threshold Regression model show that the relationship between ICT and GHG emissions is dependent on the level of environmental taxes. During the period of low environmental taxes, the effect of ICT on GHG emissions is positive and insignificant but once environmental taxes cross the threshold value, the effect of ICT becomes negatively related to greenhouse gas emissions. This suggests that the period of low environmental taxes does not support the environmental friendliness of ICT development in the European region. The policy implication of these findings is that ICT, environmental taxes, and renewable energy can be possibly stirred up to achieve long-term environmental sustainability in the EU region.
Does geopolitics trigger energy inflation in the European economic area? Evidence from a panel time-varying regression
(Emerald, 2023) Olasehinde-Williams, Godwin; Olanipekun, Ifedolapo; Usman, Ojonugwa
Purpose – This paper aims to examine the reaction of energy inflation to geopolitical risks in the European Economic Area between 1990 and 2015. Design/methodology/approach – This study applies the nonparametric time-varying coefficient panel data model with fixed effects. In addition, to further reveal potential tail effects that may not have been captured by conditional mean-based regressions, the method of moments quantile regression was also used. Findings – The findings of this study are as follows: first, as European countries get exposed to geopolitical tensions, it is expected that energy prices will surge. Second, the ability of geopolitical risk to trigger energy inflation in recent times is not as powerful as it used to be. Third, countries with a lower inflation rate, when exposed to geopolitical risks, experience smaller increases in energy inflation compared to countries with a higher inflation rate. Research limitations/implications – The findings of this study lead us to the conclusion that transitioning from nonrenewable to renewable energy use is one channel through which the sampled countries can battle the energy inflation, which geopolitical risks trigger. A sound macroeconomic policy for inflation control is a complementary channel through which the same goal can be achieved. Originality/value – Given the increasing level of energy inflation and geopolitical risks in the world today, this study is an attempt to reveal the time-varying characteristics of the relationship between these variables in European countries using a nonparametric time-varying coefficient panel data model and method of moments quantile regression with fixed effects
Dynamic connectedness of clean energy markets, green markets, and sustainable markets: The role of climate policy uncertainty
(Elsevier, 2024) Özkan, Oktay; Sunday Adebayo, Tomiwa; Usman, Ojonugwa
This study examines the dynamic connectedness of clean energy, green, and sustainable markets, and determine how climate policy uncertainty affects the level of connectedness in these markets. To this end, we use clean energy and clean technological innovation assets to represent clean energy markets; green bonds and clean cryptocurrency assets to represent green markets; and carbon and sustainability assets to represent sustainable markets. To analyze the connectedness, we apply a novel Quantile Connectedness measure to daily data ranging from January 9th, 2018 to September 11th, 2023. Results reveal a strong interconnectedness of clean energy markets, green markets, and sustainable markets. Results also show that clean energy markets are net transmitters of shocks, green markets are net receivers of shocks, and sustainable markets are both net transmitters and net receivers of shocks. Furthermore, to examine the role of climate policy uncertainty, we employ three different nonlinear methods, namely; the nonparametric causality-in-quantiles, quantile regression, and Kernel-based regularized least squares. Empirical results suggest that climate policy uncertainty has a causal and positive effect on the interconnectedness of clean energy, green, and sustainable markets. These findings are validated by various robustness analyses, and hence, provide vital insights into the risk diversification's goal of investors and portfolio managers.
Economic development and energy consumption in Saudi Arabian economy: do globalization, financial development and capital accumulation matter?
(Emerald Publishing, 2023) Rafindadi, Abdulkadir Abdulrashid; Isah, Aliyu Buhari; Usman, Ojonugwa
Purpose: This paper aims to empirically examine the impact of economic development and energy consumption in Saudi Arabia (the leading OPEC giant and the Arab energy icon country) between 1971 and 2015, whilst incorporating globalization, financial development and capital accumulation. Design/methodology/approach: This study uses econometric tools and the analytical framework based on the autoregressive distributed lag (ARDL) model. Findings: The study found that, unlike economic development, globalization and financial development increased energy consumption. Also, capital accumulation created a boost in the country’s energy consumption. Results of variance decomposition indicate that the innovative shocks in globalization and financial development affected energy consumption at the rates of 15.28% and 28.98%, respectively, over 15 years’ period, while shocks in capital accumulation affected energy consumption at a rate of only about 1.24%. In addition, the results of impulse response function show that globalization and economic development were highly responsive to shocks in financial development, and capital accumulation greatly spurred financial development. Research limitations/implications: The findings of this study have implication for promoting an efficient and sustainable energy systems that enhance sustainable development based on the accrued benefits of globalization, financial development and capital accumulation. Originality/value: Given the increasing level of globalization, financial development and energy consumption, our study uses econometric tools and the analytical framework based on the ARDL model to revisit how energy consumption is influenced by economic development in Saudi Arabia by incorporating other determinants of energy consumption such as globalization, financial development and capital accumulation. The results were validated based on the innovative accounting.
Effect of domestic material production on environmental sustainability in EU countries under changing financial development: a dynamic panel threshold regression approach
(Springer, 2024) Usman, Ojonugwa; Iorember, Paul Terhemba; Alola, Andrew Adewale; Bekun, Festus Victor
Although the European Union (EU) has made significant progress towards achieving the Sustainable Development Goals (SDGs), the goal of sustainable consumption and production (SDG 12) is reported to be far from being achieved in the region. This study examines the effect of domestic material production on environmental sustainability (measured by greenhouse gas emissions) at different levels of financial development in 19 EU countries over the period 2000-2017. Using a dynamic panel threshold regression approach, the results provide evidence that domestic material production increases greenhouse gas emissions only when financial development is below a threshold of 0.8743%. The effect of domestic material production on greenhouse gas emissions is negative and insignificant when financial development exceeds the estimated threshold. The results further show that domestic material consumption, financial development and investment in research and development all hinder environmental sustainability by intensifying greenhouse gas emissions. Moreover, the results indicate that income per capita and renewable energy improve environmental sustainability by dampening greenhouse gas emissions. The robustness of these results is tested using fixed-effects ordinary least squares and random-effects generalised least squares with Driscoll-Kraay standard errors. Therefore, this study offers policy implications for achieving a sustainable environment.
Effect of exchange rate uncertainty, energy prices and sectoral spending on agriculture value added, household consumption, and domestic investment
(Elsevier, 2024) Iorember, Paul Terhemba; Yusoff, Nora Yusma Mohamed; Abachi, Philip Terhemen; Usman, Ojonugwa; Alola, Andrew Adewale
The agricultural value chain is underpinned by the interdependence of agricultural value added, household consumption and domestic investment. Understanding the complex interactions between these microeconomic outcomes and the uncertainties in the macroeconomic variables of exchange rates, energy prices and sectoral spending remains under-researched. Therefore, this study examines the impact of exchange rate, energy prices and sectoral spending on agricultural value added, household consumption and domestic investment in Nigeria from 1981 to 2020. Using Kernel regularized least squares (KRLS), the results show that the average pointwise marginal effects of exchange rate and agricultural spending are positive, while the average pointwise marginal effect of energy price is significantly negative for the agricultural value-added model. The results also show that the exchange rate, energy prices and agricultural expenditure all have a positive effect on household consumption. Regarding domestic investment, the effect of the exchange rate is positive and statistically insignificant, while the effects of energy prices and agricultural expenditure are negative and statistically significant. The study recommends the need to strengthen the social safety nets currently in place in Nigeria to support households that are vulnerable to exchange rate fluctuations. In addition, incentives should be given to households and farmers to help use renewable energy sources such as solar or wind power for agricultural activities. Also, investment in value chains and agribusiness initiatives should be encouraged rather than just in crop production.
Energy security-related risks and the quest to attain USA's net-zero emissions targets by 2050: a dynamic ARDL simulations modeling approach
(Springer, 2024) Usman, Ojonugwa; Özkan, Oktay; Alola, Andrew Adewale; Ghardallou, Wafa
The Russia-Ukraine war and other similar conflicts across the globe have heightened risks to the United States of America's (USA's) energy security. However, little is known about the severity of the effect of energy security risks on the USA's quest to attain net-zero emissions targets by 2050. To this end, we examine the effect of energy security risks on the load capacity factor (LCF) in the USA. Employing a time series dataset spinning from 1970 to 2018, the results of the Dynamic Autoregressive Distributed Lag (ARDL) simulations model suggest that energy security-related risk hampers the long-term net-zero emissions targets with its effect decreasing over time until it varnishes in about 5 years time. The results also show that foreign direct investment (FDI) inflows, renewable energy consumption, and green technology have long- and short-run positive effects on the LCF. Conversely, economic expansion and urbanization impede environmental quality by lowering the LCF both in the long run and short run. These findings are upheld by the outcomes of the multivariate quantile-on-quantile regression. Therefore, the study advocates for the consumption of renewable energy, investment in green technologies, and FDI inflows to mitigate energy security-related risks and attain the net-zero emissions targets by 2050 in the USA.
Energy-related uncertainty shocks and inflation dynamics in the U.S: A multivariate quantile-on-quantile regression approach
(Elsevier, 2024) Usman, Ojonugwa; Özkan, Oktay; Koy, Ayben; Adebayo, Tomiwa Sunday
Existing literature suggests that uncertainty shocks can propagate like aggregate demand shocks or aggregate supply shocks. By way of extension, this study investigates the effect of energy-related uncertainty shocks on U.S. inflation while incorporating the effect of industrial production and interest rate uncertainty shocks. Using a multivariate quantile-on-quantile regression for the period 2000:M6 to 2019:M7, the findings reveal that energyrelated uncertainty shocks amplify inflation by manifesting as cost-push shocks with a stronger connection emerging in quantiles slightly above the median quantile distribution of energy-related uncertainty. Although industrial production positively drives inflation, its effect is observed less around median quantiles of inflation than in the lower and upper quantiles. Furthermore, the effect of interest rate uncertainty is negative and stronger in quantiles around the median of inflation, suggesting that interest rate uncertainty behaves like aggregate demand shocks. Based on these findings, policy implications are offered.
Examining crude oil price outlook amidst substitute energy price and household energy expenditure in the USA: A novel nonparametric multivariate QQR approach
(Elsevier B.V., 2023) Alola, Andrew Adewale; Özkan, Oktay; Usman, Ojonugwa
The outlook of crude oil prices has sparsely been empirically examined especially from the critical perspectives of energy expenditure per household, retail electricity prices, and environmental indicators. Given the enormous macroeconomic and socioeconomic effects of crude oil price amidst the fundamentals, this study examines the dynamics of the oil price outlook amidst energy demand (measured by energy expenditure per household), retail electricity price i.e., substitute price, and carbon dioxide (CO2) emissions in the United States of America (USA) over the period 1970 to 2040. This study offers two main innovations: first, it extends the bivariate nonparametric Quantile-on-Quantile Regression (QQR) to the multivariate case. Second, the analysis incorporates projected data series, which provides useful policy insights. The empirical results show evidence of time-varying effects of energy expenditure per household, retail electricity price, and CO2 emissions across the quantiles of crude energy prices. The results further show that the effect of energy demand through household energy expenditures is positive and stronger at the lower quantiles of crude oil price, which corresponds to periods of low crude oil prices. Furthermore, the effects of retail electricity price and CO2 emissions are negative and stronger in the mid-quantiles of crude oil price. This suggests that retail electricity prices and environmental indicator dampen crude oil prices during periods of low crude oil prices. These findings are robust to multivariate Quantile regression and Kernel-based Regularized Least Squares (KRLS) estimates. Therefore, our study suggests time-varying policies to dampen the effects of energy demand, retail electricity price, and environmental indicator on crude oil prices in the USA.
Examining the interaction effect of control of corruption and income level on environmental quality in Africa
(MDPI, 2022) Usman, Ojonugwa; Iorember, Paul Terhemba; Öztürk, İlhan; Bekun, Festus Victor
The effects of corruption and income on environmental degradation is well established in the literature. However, little attention has been given to how the control of corruption affects the environmental quality at different levels of income. This study examines the interaction effect of the control of corruption and income on environmental quality in Africa over the period from 1996 to 2017. Using a Method of Moments Quantile Regression (MMQR) with fixed effects, the results revealed that both the control of corruption and income level increase CO2 emissions while their interaction term reduces CO2 emissions. This implies that the interaction effect of the control of corruption and income level mitigates carbon emissions. Particularly, the marginal effect of the control of corruption on CO2 emissions decreases as income level increases. Furthermore, renewable energy consumption has a negative and significant effect on CO2 emissions. The effect of foreign direct investment on CO2 emissions is positive and significant, which validates the pollution haven hypothesis. These results are heterogeneous across the quantile distribution of CO2 emissions. Based on these findings, our study suggests the need for the government and policymakers to stimulate income levels as a prerequisite for achieving sound and effective environmental policies in Africa.
Global evidence of multi-dimensional asymmetric effect of energy storage innovations on environmental quality: Delineating the role of natural resources, nuclear energy and oil consumption
(Elsevier, 2024) Usman, Ojonugwa; Özkan, Oktay; Ike, George N.
The strive to lower reliance on fossil fuels and transition to clean energy sources necessitates innovations in energy storage. This study empirically investigates the effectiveness of energy storage innovations towards a greener environment on a global scale. To this end, we use quarterly frequency time series data on a global scale over the period 2000 to 2020 and the estimation techniques based on the nonparametric multivariate quantile on quantile regression (MQQR), multivariate quantile regression (MQR), and Kernel-based regularized least squares (KRLS). The empirical results reveal that energy storage innovation and nuclear energy are strongly related to a decline in carbon dioxide emissions (CO2e) but natural resources and oil consumption intensify the level of CO2e across quantiles. However, the effects of energy storage innovation, nuclear energy, natural resources, and oil consumption are heterogeneous leading to an asymmetric pattern across quantile distribution. The policy implication of this study is that, on a global scale, energy storage innovation and nuclear energy provide opportunities for attaining a greener environment and more environmentally sustainable future but natural resources and oil consumption impede policies toward a sustainable environment. Therefore, our study recommends, among other things, an aggressive boost of energy storage system and nuclear energy while decreasing reliance on fossil fuels.
Global evidence on the energy-environment dilemma: the role of energy-related uncertainty across diverse environmental indicators
(Taylor & Francis Inc, 2024) Ozkan, Oktay; Usman, Ojonugwa; Eweade, Babatunde Sunday
Several existing studies show that macroeconomic uncertainties intensify global environmental and climate challenges, putting the globe at risk of not being able to achieve the United Nations' Sustainable Development Goals by 2030. In this study, we provide global evidence on the role of energy-related uncertainty in the energy - environment dilemma between 1996 and 2021. We employ three distinct environmental indicators - load capacity factor (LCF), carbon dioxide emissions (CO2), and ecological footprint (EFP) - alongside a comprehensive global energy-related uncertainty index and time-frequency-quantile methods based on the Wavelet Quantile Correlation, Cross-Quantilogram, and Wavelet Local Multiple Correlation with Dominance. The empirical results suggest negative and strong nonlinear dependencies between energy-related uncertainty and the LCF across periods and quantiles. The results further suggest that the energy-related uncertainty has positive and strong nonlinear dependences not only with CO2 emissions but also EFP across various periods and quantiles. The results further suggest that the dependences between energy-related uncertainty and environmental indicators vary across periods and quantiles, with evidence of stronger dependency structures in the long run. These findings underscore the substantial influence of energy-related uncertainties on contemporary environmental challenges. We suggest that governments and policymakers need to reshape policy directives toward mitigating the environmental effects of energy-related uncertainties.
Global liquidity effect of quantitative easing on emerging markets
(Springer Science and Business Media Deutschland GmbH, 2024) Balcılar, Mehmet; Usman, Ojonugwa; Wohar, Mark; Roubaud, David; Güngör, Hasan
Using a panel quantile vector autoregression model, we investigate the global liquidity effect of quantitative easing (QE) in the US on emerging markets (EMs) over the period 2010:Q1 to 2019:Q3. Our empirical result suggests that tapering of QE in the US triggers a large capital outflow from the EMs. In addition, we find a significant asymmetric effect of QE on portfolio investment flows to EMs with a stronger effect in the higher quantiles. The implication of these findings is that tapering the large-scale asset purchases and other instruments of unconventional monetary policy have a larger effect on EMs.
House price connectedness and consumer sentiment in an era of destabilizing macroeconomic conditions: Empirical evidence from Türkiye
(Borsa Istanbul Anonim Sirketi, 2023) Balcılar, Mehmet; Usman, Ojonugwa; Yülek, Murat; Ağan, Büşra; Erdal, Bahar
This study analyzes changes in the connectedness of 26 regional house prices in Turkiye and determines how consumer sentiments affect ¨ connectedness in the era of destabilizing macroeconomic conditions over the period from January 2010 to April 2022. To this end, we estimate network connectedness using a Lasso VAR model and time-varying analyses using a rolling linear VAR model for the pre-crisis and post-crisis periods. Our empirical results provide evidence of a high connectedness of house prices, with a greater degree of connectedness witnessed during the post-crisis period across regions in Turkiye. The results further divulge that Ankara (region TR51) is a major transmitter of connectedness ¨ during the pre-crisis period, while Istanbul (region TR10) is a major transmitter of connectedness during the post-crisis period. By and large, our results show that the degree of connectedness is associated with the period of financial and economic destabilization, characterized by a significant depreciation of the local currency, rising inflation rates, and an increasing cost of borrowing accompanied by rising loan restructurings and defaults. Furthermore, the empirical results indicate substantial evidence of a positive impact of consumer sentiment on the degree of connectedness during the post-crisis period. These empirical results are validated by the results of the time-varying Granger causality tests
How do energy market shocks affect economic activity in the US under changing financial conditions?
(Springer International Publishing, 2022) Balcılar, Mehmet; Usman, Ojonugwa; Roubaud, David
Credit markets play a crucial role in the propagation of shocks through an economy. Both economic uncertainty and oil market shocks transmit through credit markets to various sectors of an economy. However, the transmission of the shocks depends on the state of an economy as crises periods behave quite differently from normal times. We use a nonlinear vector autoregressive (VAR) model to study the transmission of uncertainty and oil market shocks using monthly data over the 1986:M1–2021:M1 period. The nonlinear VAR model allows the transmission of uncertainty and oil market shocks to a change during financial distress periods. We find that economic uncertainty is closely related to financial conditions and transmission dynamic change during financial crises. Uncertainty shocks are recessionary with a stronger effect during financial distress. Oil supply shocks associated with increasing oil prices are also recessionary and stronger during financial distress while positive demand shocks are expansionary. We find strong asymmetry in responses of macroeconomic aggregates across financial regimes and signs of the shocks. © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2022.

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