Is the time-varying frequency connectedness across crude oil prices, geopolitical risk, economic policy uncertainty, and foreign exchange rates different between Asian and non-Asian countries?

Abstract

This paper employs a time-varying frequency connectedness framework to empirically quantify differences in systemic risk dynamics between Asian and non-Asian countries. We explore the connectedness across the forex markets, crude oil market, geopolitical risk, and economic policy uncertainty, including major global crises such as the 2008 financial crisis, 2020 COVID-19 pandemic, and 2022 Russian-Ukrainian conflict. Our study reveals that non-Asian countries' foreign exchange rates act as systemic risk transmitters, while Asian countries' rates are receivers. Crude oil price volatility has a stronger effect on non-Asian markets, whereas Asian markets are more sensitive to shifts in geopolitical and policy uncertainty. Short-term frequencies dominate return connectedness, while long-term frequencies drive volatility. Additionally, systemic risk from COVID-19 has more enduring effects than the 2008 crisis, while the impact of the Russian-Ukrainian conflict appears transient. These findings offer insights for policymakers and investors for targeted risk management and policy formulations in an increasingly complex global environment.