IDEAS home Printed from https://ideas.repec.org/p/cte/wsrepe/49327.html

A VAR with Threshold Stochastic Volatility for State-Dependent Climate–Energy–Industry Dynamics

Author

Listed:
  • Qian, Jingye
  • Marín Díazaraque, Juan Miguel
  • Veiga, Helena

Abstract

We develop a structural VAR with Threshold Stochastic Volatility (VAR-TSV) to study state-dependent transmission among climate conditions, energy prices, and industrial activity. The model combines volatility-in-mean effects with a threshold in log-volatility dynamics that generates discrete shifts between low- and high-volatility states, while keeping VAR propagation and contemporaneous identification unchanged across regimes. The threshold is an observed Low Economic Growth indicator that shifts the level of industrial volatility. We estimate the model in a Bayesian framework and apply it to monthly data for seven European economies (1970s to 2023, varying according to availability) using temperature anomalies, CPI inflation in energy and industrial production growth. Volatility-shock impulse responses and volatility-state-conditional connectedness reveal strong cross-country heterogeneity, with high resilience in Northern Europe, high sensitivity in Central Europe, and high persistence in Southern Europe.

Suggested Citation

  • Qian, Jingye & Marín Díazaraque, Juan Miguel & Veiga, Helena, 2026. "A VAR with Threshold Stochastic Volatility for State-Dependent Climate–Energy–Industry Dynamics," DES - Working Papers. Statistics and Econometrics. WS 49327, Universidad Carlos III de Madrid. Departamento de Estadística.
    • Handle: RePEc:cte:wsrepe:49327
    as

    Download full text from publisher

    File URL: https://e-archivo.uc3m.es/rest/api/core/bitstreams/4ea39887-3aec-4937-a942-d2250c776522/content
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
    2. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2014. "What Do We Learn from the Weather? The New Climate-Economy Literature," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 740-798, September.
    3. Haroon Mumtaz & Francesco Zanetti, 2013. "The Impact of the Volatility of Monetary Policy Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(4), pages 535-558, June.
    4. Herrera, Ana María & Lagalo, Latika Gupta & Wada, Tatsuma, 2011. "Oil Price Shocks And Industrial Production: Is The Relationship Linear?," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 472-497, November.
    5. Solaun, Kepa & Cerdá, Emilio, 2020. "Impacts of climate change on wind energy power – Four wind farms in Spain," Renewable Energy, Elsevier, vol. 145(C), pages 1306-1316.
    6. repec:mcb:jmoncb:v:45:y:2013:i::p:535-558 is not listed on IDEAS
    7. Finn Roar Aune & Knut Einar Rosendahl & Eirik Lund Sagen, 2009. "Globalisation of Natural Gas Markets -Effects on Prices and Trade Patterns," The Energy Journal, , vol. 30(1_suppl), pages 39-54, June.
    8. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2012. "Temperature Shocks and Economic Growth: Evidence from the Last Half Century," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 66-95, July.
    9. Zimmermann, Florian & Keles, Dogan, 2023. "State or market: Investments in new nuclear power plants in France and their domestic and cross-border effects," Energy Policy, Elsevier, vol. 173(C).
    10. Sovacool, Benjamin K., 2013. "Energy policymaking in Denmark: Implications for global energy security and sustainability," Energy Policy, Elsevier, vol. 61(C), pages 829-839.
    11. Jahns, Christopher & Podewski, Caroline & Weber, Christoph, 2020. "Supply curves for hydro reservoirs – Estimation and usage in large-scale electricity market models," Energy Economics, Elsevier, vol. 87(C).
    12. repec:aen:journl:hh-se-a04 is not listed on IDEAS
    13. Uribe, Jorge M. & Mosquera-López, Stephanía & Guillen, Montserrat, 2020. "Characterizing electricity market integration in Nord Pool," Energy, Elsevier, vol. 208(C).
    14. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    15. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yang, Lu & Hamori, Shigeyuki, 2021. "Systemic risk and economic policy uncertainty: International evidence from the crude oil market," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 142-158.
    2. Yang, Lu, 2019. "Connectedness of economic policy uncertainty and oil price shocks in a time domain perspective," Energy Economics, Elsevier, vol. 80(C), pages 219-233.
    3. Idriss Fontaine, 2021. "Uncertainty and Labour Force Participation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(2), pages 437-471, April.
    4. Lyu, Chenyan & Do, Hung Xuan & Nepal, Rabindra & Jamasb, Tooraj, 2024. "Volatility spillovers and carbon price in the Nordic wholesale electricity markets," Energy Economics, Elsevier, vol. 134(C).
    5. Antonakakis, Nikolaos & Chatziantoniou, Ioannis & Filis, George, 2017. "Oil shocks and stock markets: Dynamic connectedness under the prism of recent geopolitical and economic unrest," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 1-26.
    6. Nilotpal Sarma & Priyanshu Tiwari & Prabina Rajib, 2025. "From Fields to Futures: Connectedness Among Edible Oil and Oilseeds- Where Soybean Leads, Others Follow," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 32(2), pages 447-463, June.
    7. Mathias Krogh & Giovanni Pellegrino, "undated". "Real Activity and Uncertainty Shocks: The Long and the Short of It," "Marco Fanno" Working Papers 0310, Dipartimento di Scienze Economiche "Marco Fanno".
    8. Mumtaz, Haroon & Theodoridis, Konstantinos, 2020. "Dynamic effects of monetary policy shocks on macroeconomic volatility," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 262-282.
    9. Dario Caldara & Chiara Scotti & Molin Zhong, 2021. "Macroeconomic and Financial Risks: A Tale of Mean and Volatility," International Finance Discussion Papers 1326, Board of Governors of the Federal Reserve System (U.S.).
    10. Gabauer, David & Gupta, Rangan, 2020. "Spillovers across macroeconomic, financial and real estate uncertainties: A time-varying approach," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 167-173.
    11. Mehmet Balcilar & Zeynel Abidin Ozdemir & Huseyin Ozdemir & Gurcan Aygun & Mark E. Wohar, 2022. "Effectiveness of monetary policy under the high and low economic uncertainty states: evidence from the major Asian economies," Empirical Economics, Springer, vol. 63(4), pages 1741-1769, October.
    12. Nikolaos Antonakakis & Ioannis Chatziantoniou & George Filis, 2014. "Dynamic Spillovers of Oil Price Shocks and Policy Uncertainty," Department of Economics Working Papers wuwp166, Vienna University of Economics and Business, Department of Economics.
    13. OlaOluwa S. Yaya & Hammed A. Olayinka & Ahamuefula E. Ogbonna & Mamdouh Abdulaziz Saleh Al-Faryan & Xuan Vinh Vo, 2024. "Dynamic connectedness of economic policy uncertainty in G7 countries and the influence of the USA and UK on non-G7 countries," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-27, April.
    14. Alessandri, Piergiorgio & Mumtaz, Haroon, 2019. "Financial regimes and uncertainty shocks," Journal of Monetary Economics, Elsevier, vol. 101(C), pages 31-46.
    15. Christopher Thiem, 2020. "Cross-Category, Trans-Pacific Spillovers of Policy Uncertainty and Financial Market Volatility," Open Economies Review, Springer, vol. 31(2), pages 317-342, April.
    16. Zhang, Yulian & Hamori, Shigeyuki, 2022. "A connectedness analysis among BRICS’s geopolitical risks and the US macroeconomy," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 182-203.
    17. Minchul Shin & Molin Zhong, 2020. "A New Approach to Identifying the Real Effects of Uncertainty Shocks," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(2), pages 367-379, April.
    18. Abricha, Amal & Ben Amar, Amine & Bellalah, Makram, 2024. "Commodity futures markets under stress and stress-free periods: Further insights from a quantile connectedness approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 229-246.
    19. Fasolo, Angelo Marsiglia, 2019. "Monetary policy volatility shocks in Brazil," Economic Modelling, Elsevier, vol. 81(C), pages 348-360.
    20. Nalban, Valeriu & Smădu, Andra, 2021. "Asymmetric effects of uncertainty shocks: Normal times and financial disruptions are different," Journal of Macroeconomics, Elsevier, vol. 69(C).

    More about this item

    Keywords

    ;

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cte:wsrepe:49327. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ana Poveda (email available below). General contact details of provider: http://portal.uc3m.es/portal/page/portal/dpto_estadistica .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.