Dynamic connectedness among the carbon, financial, energy, and commodity markets and geopolitical uncertainty: A TVP-VAR-DY time-frequency spillover network approach

Amidst the backdrop of escalating global climate change and geopolitical complexities, the interdependencies among the carbon, financial, energy, and commodity markets and geopolitical uncertainties have emerged as critical research areas. To comprehensively examine the interactions within and across these markets and their broader economic implications, in this study, we employ the TVP-VAR-DY time-frequency spillover network model. Our analysis reveals that the average total connectivity among these markets oscillates between 60% and 90%, with pronounced peaks during the COVID-19 pandemic, which underscores the pronounced dynamism and sensitivity inherent in market interactions. The carbon market assumes predominantly a receptive role as a spillover recipient, whereas the financial and energy markets function more as conduits for risk transmission. This suggests that spillover effects exhibit substantial temporal variations. Notably, the dynamic spillover index peaked during 2014–2016 and the 2020 COVID-19 pandemic, periods marked by significant global economic events and geopolitical tensions. Furthermore, market connectivity is concentrated predominantly within the short-term frequency spectrum (1–12 months), indicating intense and frequent short-term interactions. Market participants typically adapt their strategies swiftly in response to external shocks. Conversely, long-term spillover effects between many markets tend to diminish or vanish, with only select markets sustaining robust spillover linkages. Importantly, the carbon market exerts a substantial long-term spillover influence on the natural gas market. On the basis of these insights, targeted policy recommendations are formulated.