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Time-Frequency Spillover Effect of Domestic and Foreign Commodity Markets on China’s Price Levels

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  • Wenwei Guo
  • Jing Tang
  • Hongjin Zhu
  • Xiaowen Ma

Abstract

In this study, a dynamic spillover index method based on generalized variance decomposition is used to measure the volatility and return spillover effects of futures and spot markets on China’s price levels (consumer and producer price indices) at different time-frequencies. The results indicate that both domestic and foreign futures and spot markets exerted time-varying volatility and return spillover effects on China’s price levels and that major global crises aggravate the overall volatility and return spillover effect of the global futures and spot markets. In addition, the spillover effect of domestic and foreign futures and spot markets on China’s price levels is asymmetrical. The results of this study also indicate that the longer the frequency of a cycle is, the stronger the spillover effect of each market on price fluctuations is, and the weaker the return spillover effect is. Finally, the results demonstrate that China can use a combination of monetary easing and credit tightening to control inflation more effectively.

Suggested Citation

  • Wenwei Guo & Jing Tang & Hongjin Zhu & Xiaowen Ma, 2022. "Time-Frequency Spillover Effect of Domestic and Foreign Commodity Markets on China’s Price Levels," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(15), pages 4207-4217, December.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:15:p:4207-4217
    DOI: 10.1080/1540496X.2022.2106212
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