Title: Volatility spillovers in commodity markets: A large t-vector autoregressive approach
Citation: ENERGY ECONOMICS vol. 85 p. 104555
Publication Year: 2020
JRC N°: JRC118341
ISSN: 0140-9883 (online)
URI: https://publications.jrc.ec.europa.eu/repository/handle/JRC118341
DOI: 10.1016/j.eneco.2019.104555
Type: Articles in periodicals and books
Abstract: Prices of commodities have shown large fluctuations. A high volatility of one commodity today may impact the volatility of another commodity tomorrow. As such, agricultural and energy commodities are closely dependent due to the expansion of the biofuel industry. We study volatility spillovers among a large number of energy, agriculture and biofuel commodities using the vector auto regressive (VAR) model. To account for the possible fat-tailed distribution of the model errors, we propose the t-lasso method for obtaining a large VAR. The t-lasso is shown to have excellent properties, and a forecast analysis shows that the t-lasso attains better forecast accuracy than standard estimators. Our empirical analysis shows the existence of volatility spillovers between energy and biofuel, and between energy and agricultural commodities.
JRC Directorate:Joint Research Centre Corporate Activities

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