Dynamics of oil price shocks and federal interest rates: a quantile based analysis during crisis period

This paper examines the interactions between shocks to oil prices (demand, supply, and risks) and the federal funds rate and the MSCI World Climate Change Index (CLMT), a market-based measure of transition risk and green asset valuations, utilizing a cross-spectral coherency and a novel Quantile VAR extended joint connectedness, the research uncovers a noteworthy impact of oil price shocks on interdependence and volatility spillovers. Notably, the coherency outcomes indicate an inverse relationship between oil price shocks (demand, supply and risks) and Federal fund rates during oil price recession (OPR) and COVID-19 crisis period. Quantile connectedness analysis shows that spillover intensities vary across different quantiles and frequencies. Total connectedness surge during OPR and COVID-19 crisis period, highlighting the heightened market connectedness during crisis periods. The dynamic connectedness analysis signifies that volatility spillovers intensify during extreme quantiles, indicating rapid volatility propagation in highly volatile market conditions. These findings have significant implications for diverse stakeholders.