A connectedness analysis among BRICS’s geopolitical risks and the US macroeconomy
Economic Analysis and Policy
; 2022.
Article
in English
| ScienceDirect | ID: covidwho-1982935
ABSTRACT
Based on the TVP-VAR (time-varying parameter vector autoregressive) based extended joint connectedness methodology, this study analyzes the joint connectedness among BRICS’s (Brazil, Russia, India, China, and South Africa) geopolitical risks and the US macro economy (interest rates, consumer price index, crude oil prices, stock prices, and gross domestic production) for return and volatility. Evidence suggests that shocks from geopolitical risks have a considerable impact on emerging economies. Emerging economies are closely linked to developed economies in today’s globalized world. Hence, the geopolitical risk of BRICS countries may further impact developed economies. In this study, we performed a cross-sectional analysis of the relationships between geopolitical risks in BRICS nations and a developed economy (e.g., US macroeconomic indicators). Our results were significant in at least two ways. First, geopolitical risks in China and Russia considerably impact the return and volatility system. In contrast, geopolitical risks in China have fewer impacts on the US macro economy than in Russia, Brazil, and India. Second, the value of total joint connectedness during the COVID-19 period was greater than during the 2007–2008 global financial crisis. Third, the consumer price index, crude oil prices, and stock prices receive greater connectedness from the others. The results suggest that policymakers and investors should not pay excessive attention to geopolitical risk in China. Moreover, because the oil and stock markets are highly interdependent, risk spikes for investors who hold both oil and stock when facing high geopolitical risk. We recommend that investors reduce their simultaneous holdings of both assets in times of high geopolitical risk and consider alternative safe haven assets.
Full text:
Available
Collection:
Databases of international organizations
Database:
ScienceDirect
Type of study:
Prognostic study
Language:
English
Journal:
Economic Analysis and Policy
Year:
2022
Document Type:
Article
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