Measuring dynamic connectedness networks in energy commodities: evidence from the D-Y and frequency connectedness approaches

Abstract

In this study, we examine the energy commodities connectedness between the period June 2006 and April 2020 by implementing the Diebold-Yilmaz and the frequency connectedness approaches. We estimate dynamic connectedness between WTI crude oil, the Henry Hub natural gas, ULS diesel and the gasoline prices over the analysed period. Overall spillover indexes estimated by both methodologies properly respond to prominent geopolitical events over the sample period. Additionally, we plot network graphs for directional spillovers reflecting two distinct periods, 2007:3-2019:12 and 2020:1-2020:4. Network analysis verifies that the directional spillovers between energy commodities have prominently surged due to the COVID-19 outbreak. The findings of the study underline the importance of an effective regulatory framework for monitoring commodity price developments to avoid adverse effects of commodity price shocks. Additionally, the authorities should enact policy actions to counteract the detrimental effects of the COVID-19 pandemic on the commodity markets.