Resources Policy 74 (2021) 102260

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Resources Policy
journal homepage: www.elsevier.com/locate/resourpol

Are precious metals and equities immune to monetary and fiscal

policy uncertainties?
Adil Ahmad Shah a, Arif Billah Dar a, *, N.R. Bhanumurthy b
a
School of Economics, Shri Mata Vaishno Devi University, Katra, Jammu and Kashmir, 182320, India
b
Bengaluru Dr B R Ambedkar School of Economics University, Jnana Bharathi Main Road Nagarbhavi Post, Bengaluru, 560072, India

A R T I C L E I N F O A B S T R A C T

JEL classification: We examine spillovers among policy uncertainties (Monetary and Fiscal), precious metals, and equity markets to
G01 investigate whether precious metals and equities are immune to monetary and fiscal policy uncertainties? The
E5 monthly data of monetary and fiscal policy uncertainties, gold, silver, and S&P-500 prices from January 1987 to
Keywords: November 2020 are used. The empirical results reveal that the overall spillovers among the system variables are
Policy uncertainties weak. Further, the cross-spillovers between precious metals and policy uncertainties are found to be lower than
Precious metals
the cross-spillovers between equity and policy uncertainties. The decomposition of overall spillovers into various
Time-frequency connectedness
Global financial crisis
frequencies indicate that shorter followed by longer and medium time-horizons drive overall spillovers. The
Covid-19 frequency-based results reveal that cross-spillovers between policy uncertainties and equity are mostly driven by
shorter horizons. Whereas, the cross-spillovers between policy uncertainties and precious metals are driven by
longer horizons. Thus, it appears that precious metals are relatively more immune to the shocks from policy
uncertainties than equity markets, thereby suggesting safe investment opportunities in precious metals during
economic policy uncertainties. The results are helpful for portfolio managers, institutional investors, and poli­
cymakers for the strategic allocation of their funds during monetary and fiscal policy uncertainties.

1. Introduction
It is now a stylized fact that policy uncertainties have implications for
forward-looking financial market participants in portfolio rebalancing
and management of expected risk (Bernanke, 1983; Al-Thaqeb and
Algharabali, 2019). Theoretically, this idea underpins the fact that
market confidence and the decision making of financial market partic­
ipants are linked to policy formulations. Expansionary monetary and
fiscal policies, for example, are viewed as a potential driver of future
inflationary tendency. The expected inflation increases the demand for
safe-haven assets like stocks and precious metals (Reboredo, 2013;
Narayan et al., 2010). Owing to certain distinct properties of precious
metals like scarcity, stability and lesser use in industry, their use as a safe
haven is heavily documented in the empirical literature (Rigobon and
Sack, 2003; Ioannidis and Kontonikas, 2008; O Connor et al., 2015). The
9/11 terror attack, the Global Financial Crisis of 2007–08 (henceforth
GFC) and the recent Covid-19 pandemic induced policy uncertainty
witnessed a huge lure from the individual investors to take positions in
the safe-haven assets, especially, gold (Akhtaruzzaman et al., 2020; Baur
and McDermott, 2010; Salisu et al., 2021). Silver, the closest substitute
of gold, shares some of the properties of gold and has again been
confirmed as a safe investment during uncertainty (Uddin et al., 2019; O
Connor et al., 2015). The portfolio rebalancing induced by policy un­
certainty thus motivates us to explore the spillover transmission among
policy uncertainties (monetary and fiscal), precious metals (gold and
silver), and equity markets. In particular, we intend to evaluate and
compare the spillovers between:
1. Equities and policy uncertainties
2. Precious metals and policy uncertainties.
The comparison would allow us to evaluate the relative immunity of
precious metals and equities to policy uncertainties. We nevertheless
intend to examine this with several novelties. Recent studies like Gozgor
et al. (2019), Huynh (2020), and Gao et al. (2021) confirm the safe in­
vestment potential of gold against economic policy uncertainty and
geopolitical risk. However, there is still limited knowledge on the safe
investment potential of precious metals against different components of
economic policy uncertainty, such as monetary and fiscal policy un­
certainties. Instead of considering economic policy uncertainty, we

* Corresponding author.
E-mail addresses: adilshah6348@gmail.com (A.A. Shah), a.billah@smvdu.ac.in, billaharif0@gmail.com (A.B. Dar), nrbmurthy@gmail.com (N.R. Bhanumurthy).

https://doi.org/10.1016/j.resourpol.2021.102260
Received 2 March 2021; Received in revised form 19 July 2021; Accepted 19 July 2021
Available online 28 July 2021
0301-4207/© 2021 Elsevier Ltd. All rights reserved.
A.A. Shah et al.
separately consider fiscal policy and monetary policy uncertainties. This
allows us to disentangle the spillovers from fiscal policy and monetary
policy uncertainties. Besides, to the best of our knowledge, the explo­
ration of safe investment opportunities in precious metals and equities
against monetary and fiscal policy uncertainties over different fre­
quencies has not been explored yet. We also explore both time and
frequency-based spillover transmission among policy uncertainties
(monetary and fiscal), precious metals (gold and silver) and equity
markets. To account for the policy changes induced by events like the
9/11 terrorist attack, the 2007-08 Global Financial Crisis (G.F.C), the
European Debt Crisis (E.D.U) of 2011–12, the Sino-US trade war of
2018, and the Covid-19 pandemic, we measure the spillovers over time
and across different time horizons. We thus employ the framework of
Diebold and Yilmaz (2012) [hereafter DY] that captures overall and
dynamic measures of spillover. The framework of Baruník and Křehlík
(2018) [hereafter BK] is used to decompose DY overall and dynamic
measures of spillover into desired frequencies. DY approach is funda­
mentally based on the multivariate vector-autoregressive framework.
For estimation purposes, it focuses on the use of generalized variance
decomposition that shows, on average how much a shock in monetary or
fiscal policy uncertainty contributes to explain the h-period ahead
variation in precious metals or equity prices. The frequency version of
DY, known as BK, on the other hand, describes the spectral represen­
tation of variance decomposition that shows the frequency response of
shocks.
The empirical results of our study reveal that the overall spillover
index (interdependence) among policy uncertainties, precious metals,
and equity markets is weak. However, the cross-spillover results indicate
that the spillovers between policy uncertainties and equity markets are
more than the spillovers between policy uncertainties and precious
metals. Further, the frequency-based spillovers show that the overall
spillover index among the system variables is mostly driven by shorter
followed by longer and medium time horizons. The frequency-based
cross-spillover results reveal that spillovers between equity and the
policy uncertainties are mostly driven by shorter horizons. Whereas, the
spillovers between precious metals and policy uncertainties are driven
by longer horizons. Thus it appears that precious metals are relatively
more immune to spillovers from the monetary and fiscal policy un­
certainties. Precious metals can serve as safe investments against mon­
etary and fiscal policy uncertainties.
The rest of the paper is organized as follows. The following section
provides a review of the existing studies. Section 3 describes preliminary
analysis and data description. The methodological framework of DY and
BK is laid out in Section 4. In Section 5, the results of the empirical
analysis are discussed. Finally, Section 6 provides conclusions and policy
implications of the study.
2. Literature review
Ever since the advent of the global financial crisis in 2007–08, the
economies around the world have witnessed uncertain economic pol­
icies (Huynh et al., 2020; Burggraf et al., 2020). These uncertain eco­
nomic policies tend to spillover to various economic variables, such as
unemployment, output, inflation, and asset prices. Investors often try to
insulate themselves from these shocks by investing in safe-haven assets.
The subject matter has received greater attention with the inception of
economic policy uncertainty indicators, as proposed by Baker et al.
(2014, 2016). Based on the impact of economic policy uncertainties on
various economic variables, we divide the existing studies into two
broad categories, viz. the ones which measure the impact on real vari­
ables and the studies which measure the impact on financial variables.
The negative impact of policy uncertainties on the real economic
variables is thoroughly documented in the studies of Dixit et al. (1994)
and Bernanke (1983). In their empirical work, Bloom (2009) and Cag­
giano et al. (2017a,b) show that declining household income, corporate
profitability, and employment rate are attributed to an increase in policy
2
Resources Policy 74 (2021) 102260
uncertainties. Born and Pfeifer (2014) and Fernández-Villaverde et al.
(2015) use the general equilibrium model in the US to investigate the
impact of monetary and fiscal policy uncertainties on the real sector. The
study concludes that policy uncertainties have an adverse impact on real
economic variables. Similarly, Balcilar et al. (2016) employ a
mixed-frequency Markov-switching vector autoregressive approach to
investigate the role of economic policy uncertainty in predicting the US
recessions. The study shows that economic policy uncertainty predicts
GDP growth rates and the associated recessions. Mumtaz and Surico
(2018) examine the impact of various policy uncertainties, such as
monetary policy, public debt, government spending, and changes in tax
rates on output, consumption, investment, consumer confidence, and
business confidence in the US. The study finds that overall, 25 % of the
fluctuations in output are due to policy uncertainties with government
debt uncertainty and tax uncertainty playing the lead role. For real
variables: Caggiano et al. (2020) employs a VAR-based framework to
quantify the impact of US economic policy uncertainty on the employ­
ment rate in Canada during booms and busts. The empirical results show
that 13 % of the change in the unemployment rate in Canada is
explained by a shock in US economic policy uncertainty during the bust,
as against 2 % during the boom.
He et al. (2020) examines the spillover impact of economic policy
uncertainties from six major economies including the US on S&P-500.
They find that the US stock market is the net receiver of spillovers from
the economic policy uncertainties, with Japanese economic policy un­
certainty playing the lead role. Istiak and Alam (2020) investigate the
spillover transmission from the US monetary policy uncertainty to the
stock markets of GCC. By employing a VAR framework, they find that
increase in economic policy uncertainty in the US decreases the stock
market performance of GCC markets. Mumtaz and Surico (2018) show
that uncertain fiscal policies in the US impact precious metal prices if
these policies are expected to be detrimental to real economic activity.
Hammoudeh et al. (2015) show that the US monetary policy plays a
significant role in setting global asset prices as the majority of the global
trade is carried out in the US dollar denomination. The IMF report
published in 2014 also shows that the spillover impact of the US and
European monetary policy uncertainties are felt globally. Pastor and
Veronesi (2012) employ a general equilibrium model and conclude that
there is a positive relationship between the fall in stock prices and an
increase in economic policy uncertainty. Similarly, Ioannidis and Kon­
tonikas (2008) and Rigobon and Sack (2003) show that shifts in mon­
etary policy have a significant impact on stock prices. Kim and Nguyen
(2009) and Wongswan (2009) show that the change in the federal funds
rate has a spillover impact on the stock markets of Asia-Pacific, Europe,
and Latin America.
Unlike the aforementioned economic variables (real or financial)
that perform poorly under uncertain economic policies, commodities in
general and precious metals, in particular, perform relatively better on
average due to their risk-loving characteristics. The recent study of
Huynh (2020) employs the Transfer Entropy and Neural Network VAR
model to investigate the hedging and safe-haven properties of precious
metals against economic policy uncertainty and volatility index. Their
findings indicate that gold is a hedge against economic policy uncer­
tainty and equity market uncertainty, while the remaining precious
metals are immune to the risk from economic policy uncertainty only.
Similarly, Gao et al. (2021) employ the DY model to explore the spillover
transmission among economic policy uncertainty, oil, gold, and stocks in
China. The study concludes that the influence of economic policy un­
certainty on gold is greater than the stock market, while economic policy
uncertainty in itself gets influenced by oil and stock market than the gold
market. Gozgor et al. (2019) employ Bayesian Structural Vector Autor­
egressive, DY, and BK models to investigate the relationship between
various measures of uncertainty and gold. The results reveal that
changes in geopolitical risk and the US exchange rate have a significant
positive impact on gold prices.
Studies analysing the spillovers among precious metals, stocks, fiscal
A.A. Shah et al. Resources Policy 74 (2021) 102260

policy uncertainty and monetary policy uncertainty are scarce. Table 2

Considering this, we build on Huynh (2020), Gao et al. (2021) and Spillover Table for Frequency Band a to b.
Gozgor et al. (2019) to contribute the existing research by evaluating the x1 x2 … xN From
relative immunity of precious metals and equities to monetary and fiscal
x1 e11 e12 e1N N
policy uncertainties at a disaggregate level. Disaggregation of policy … ∑
e1j , e11 = 0
uncertainty into monetary and fiscal policy is necessary to assess the x2 e21 e22 … e2N
j=1
∑N
e2j , e22 = 0
individual impact of policy uncertainties on precious metals and equity j=1
markets. Besides, the existing study of Gao et al. (2021) explores the ⋮ ⋮ ⋮ … ⋮ ⋮
time-varying spillovers among policy uncertainty, stocks and commod­ xN eN1 eN2 … eNN N
∑
eNj , eNN = 0
ities in China. Considering the heterogeneity of distinct market partici­ To N N … N
j=1
N
∑ ∑ ∑ ∑
pants and the global economic and political clout of the US, it is essential ei1 , e11 = ei2 , e22 = e2j , e22 = eij , eij =
i=1 i=1 i=1 i,j=1
to account for the spillover at distinct investment horizons and from the 0 0 0 0 ​ if ​ i = j
monetary and fiscal policies point of view of the US. With this backdrop,
we evaluate the relative immunity of precious metals and equities to the Source: Author’s representation with theoretical support drawn from the Die­
US monetary and fiscal policy uncertainties both over time and across bold and Yılmaz (2015).
various frequencies. The findings would be helpful to financial market
participants for strategic allocation of their funds during monetary and 3.1. Definitions and measurement of spillovers
fiscal policy uncertainties.
Own-Spillovers measure future variation in a variable, say xi due to a
3. Methodology shock from itself xi . The frequency counterpart of own-Spillovers is
defined by a similar logic at a particular desired frequency band, say y =
Following Diebold and Yılmaz (2015), we describe the methodo­ (a, b). Own-Spillovers are represented by the diagonal elements of Ta­
logical framework of overall spillover measures of DY with the help of bles 1 and 2.
Table 1. We further extend the similar logic to describe the frequency Cross-spillovers measure future variation in a variable xi due to a
counterpart of DY (BK) in Table 2 .1 DY is based on the VAR approxi­ shock arising from another variable, say xj . Cross-spillovers are repre­
mating model and that its estimation is carried out by generalized sented by the non-diagonal elements of Tables 1 and 2 for overall and
variance decomposition rather than Cholesky decomposition. Therefore, frequency-based spillovers respectively.
unlike Diebold and Yilmaz (2009), the spillover measures of DY are Symbolically,
independent of order (Pesaran and Shin, 1998; Koop et al., 1996). Ci←j = dij
Table 1 shows the magnitude of future H-period ahead percentage
variation (uncertainty), say dij in a variable xi due to a shock arising with similar logic, the future variation in xj due to xi is given as:
from xj , while eij in Table 2 shows its frequency counterpart at the
desired frequency band, say y = (a, b). The higher-frequency band Cj←i = dji
(shorter time horizon) is associated with rapid spillover transmission, Net-cross spillovers measure the relative strength of shocks between
whereas the lower frequency band (long-term) corresponds to the slow variable xi and variable xj . In particular, the negative value of net-
transmission of spillovers in the system. The accumulated spillovers at a pairwise spillovers indicates that xi is a net-receiver of spillover
particular frequency band y = (a, b) is given as: from xj , while the positive value indicates that xi is a net-transmitter of
∫b spillover to xj .
eij (y) = eij (ω)dω For the computational purpose, mathematically,
a Cij = Cj←i − Ci←j

where eij (ω) measures spillover from variable xi to variable xj at The frequency-based pairwise spillovers at the desired frequency band
frequency ω. y = (a, b) is given as:

y
∑
n
Ci←j = eij
j=1,i∕
=j

Table 1 y
where Ci←j shows spillover from xj to xi at the desired frequency band
Overall Spillover table.
y = (a, b).
x1 x2 xN From
Similarly, the pairwise spillover from xi to xj at the frequency
…

x1 d11 d12 … d1N N

∑ band y = (a, b) is given by:
d1j , d11 = 0
j=1
x2 d21 d22 … d2N ∑N ∑
n
d2j , d22 = 0 y
Ci→j = eij
j=1
⋮ ⋮ ⋮ … ⋮ ⋮ i=1,i∕
=j

xN dN1 dN2 … dNN N

∑ Now, the Net-pairwise spillovers at a particular frequency band y =
dNj , dNN = 0
To N
∑ N
∑ … N
∑
j=1
∑N (a, b) is given as:
di1 , d11 = di2 , d22 = d2j , d22 = dij , dij =
i=1 i=1 i=1 i,j=1 Ciy = Ci→j
y y
− Ci←j
0 0 0 0 ​ if ​ i = j
Directional spillovers (To) measure future variation in all other vari­
Source: Diebold and Yılmaz (2015).
ables due to a shock in xi while directional spillovers (From) measures
future variation in a particular variable xi due to a shock in all other
variables.
Symbolically,
1
For more information, please refer to Diebold and Yilmaz (2012), Diebold
and Yılmaz (2015) and Baruník and Křehlík (2018).

3
A.A. Shah et al. Resources Policy 74 (2021) 102260

∑
N due to the risk-loving attitude of precious metals.
C. ←i = dij , i ∕
=j Except for policy uncertainty indices, we express all other variables
as the first difference of their natural logarithms. The basic statistical
j=1

properties of policy uncertainty indices and the returns of all other

∑
N
Ci←. = dij , i ∕
=j variables are reported in Table 3. Silver is associated with the highest
j =1 average return and risk, whereas gold corresponds to the lowest risk.
Except for equity, all the variables show positive Skewness, indicating a
The directional spillovers at a particular frequency band y = (a, b) is
higher frequency of positive returns. The kurtosis measure for all the
given as:
variables is greater than 3, implying that the frequency of extreme ob­
y
∑
n
servations is high. The Jarque-Bera test of normality rejects the null of
Ci←. = eij
j=1,i∕
=j
normality, suggesting that all the variables are non-normally distrib­
uted. To ensure that all the variables are stationary, Augmented Dickey-
y
where Ci←. indicate spillovers from all other variables to an individual Fuller (ADF) and Philips Perron (PP) tests indicate that all the variables
variable xi at a particular frequency band y = (a, b). Similarly, the are stationary.
spillover from variable xi to all other variables at a frequency band y = Furthermore, the correlation pairs of all the considered variables are
(a, b) is given by: shown in Table 4. It can be seen from Table 4 that the coefficient of
correlation between gold and silver followed by monetary policy and
∑ fiscal policy is highest. The higher positive association between gold and
n
y
Ci→. = eij
i=1,i∕
=j
silver is attributed to their similar properties pertaining to investment
and consumption use. While the higher positive association between
The total Spillover index is a measure of overall interdependence among monetary and fiscal policy uncertainty can be attributed to the inter­
all the considered system variables that shows the percentage of future dependence of monetary and fiscal policies in the US. The negative
H-period ahead variation in the system is attributed to cross-spillovers. correlation coefficient between equity and gold returns suggests hedging
For computation purposes, the total spillover index is calculated as the potential of gold against financial risk. Besides, the negative value of the
sum of non-diagonal elements to the total number of markets associated. correlation between policy uncertainties and the equity market shows
Symbolically, an adverse impact of policy uncertainties on financial markets. Whereas,
the positive value of the correlation coefficient between policy un­
1 ∑ N
C= dij certainties with precious metal returns supports safe investment prop­
N i,j=1
erties of precious metals against monetary and fiscal policy uncertainty.
The corresponding overall connectedness at the frequency band y = The preliminary results, nevertheless, need further examination.
(a, b) is described as:
∑n 5. Empirical results and discussion
=j eij
i=1.i∕
Cy = ∑
ij eij 5.1. Overall and frequency-based spillovers
y
where C represents connectedness for a particular frequency band y = We use the five-variable VAR system to compute spillovers among
(a, b). monetary policy uncertainty, fiscal policy uncertainty, precious metals,
Since frequency-based spillovers of DY are computed by decompos­ and equity. Based on various lag length criteria, the optimal lag length of
ing overall spillover measures, the sum of connectedness at various the VAR system is one.2 The DY overall spillover measures are shown in
frequency bands equals overall system connectedness. Table 5. It can be seen from Table 5 that the overall spillover index is
29.65 %. This means that overall, almost one-third of the future varia­
4. Data and data description tion among policy uncertainties, precious metals, and equity are due to
cross-spillovers. While the remaining two-thirds of future variation is
To explore the spillovers among policy uncertainties, precious explained by own-spillovers. This implies that a substantial amount of
metals, and equity, we rely on the monthly indices of the US policy the system variation is explained by own shocks rather than shocks from
uncertainties (monetary and fiscal) as proposed by Baker et al. (2016). other variables, thereby suggesting weak spillovers (interdependence)
The monthly closing price of S&P-500 taken from Yahoo finance rep­ among policy uncertainties, precious metals, and equity markets.
resents equity, whereas, gold and silver prices for the London Bullion While the overall spillover index is quite low, the cross-spillovers
Market taken from macrotrends.net represent precious metals. Moti­ display different intensities. It can be seen from cross-spillover results
vated by the availability of the data and the various events, such as the that the spillovers between gold and silver followed by monetary and
9/11 terrorist attack, the GFC, the EDC, the Sino-US trade war, and the fiscal policy uncertainty, and policy uncertainties and equity markets
Covid-19 pandemic, the data sample ranges from January 1987 to are highest. Whereas, the policy uncertainties and equity markets have
November 2020. lower spillovers with precious metals. For example, the gold market
The time series plots at the level and first difference for policy un­ explains a 25.13 % change in silver prices while silver explains a 25.02
certainties (monetary policy uncertainty and fiscal policy uncertainty), % variation in gold prices. Similarly, monetary policy uncertainty ex­
precious metals (gold and silver), and equity markets (S&P-500) are plains 22.06 % of fiscal policy uncertainty while fiscal policy uncertainty
shown in Fig. 1. It can be observed that policy uncertainty plots are time- explains 21.46 % of monetary policy uncertainty. Whereas, equity
varying in nature, with a significant increase in fluctuations during crisis markets explain only 0.94 % and 1.18 % of the variation in gold and
periods. For example, the 9/11 terrorist attack, the GFC, the EDC, the silver prices respectively. Similarly, monetary and fiscal policy un­
Sino-US trade war-2018, and the Covid-19 pandemic are characterized certainties explain only 0.56 % and 1.21 % of silver returns. The results
by increased volatility in monetary and fiscal policy uncertainties. The are consistent with our preliminary findings from correlation patterns
time-series plots of precious metal prices show a rising trend post-2000,
with the rise in prices during the aforementioned episodes. While for the
equity market, the S&P-500 prices sharply plummet with increased 2
The results don’t differ significantly for various lags. Moreover, since the
volatility during the crisis events. This suggests the resilience of gold and study is based on the lower frequency of the data, the lag order of one is
silver in the face of policy uncertainties and financial shocks than equity justifiable.

4
A.A. Shah et al. Resources Policy 74 (2021) 102260

Fig. 1. Time-series plots of Prices and Returns.

Table 3
Descriptive statistics.
Gold Silver Equity MPU FPU

Mean 0.003740 0.045619 0.006358 91.16112 105.3716

Maximum 0.161964 6.500000 0.119421 407.9409 433.2935
Minimum − 0.124810 − 6.179784 − 0.245428 16.57451 23.05206
Std. Dev. 0.034645 1.097741 0.043990 59.05820 68.22983
Skewness 0.357681 0.616299 − 1.088006 1.810736 1.735399
Kurtosis 4.456204 13.73816 6.552108 7.600739 6.338132
Jarque-Bera 44.52928a 1976.328a 293.5463a 579.9348a 392.2901a
ADF − 17.00a − 14.36a − 18.48a − 9.97a − 6.69a
PP − 16.93a − 15.81a − 18.45a − 9.85a − 6.60a
Observations 406 406 406 406 406
a
Indicate significant at 5 % level of significance.

that reflect the safe investment potential of precious metals against
policy uncertainties and equity markets. This provides empirical support
to Huynh (2020) that precious metals are immune to policy uncertainty
shocks. Besides, the higher spillovers between gold and silver are
consistent with the results of Uddin et al. (2019). The finding that gold is
more sensitive to policy uncertainties than silver implies that policy
uncertainties are likely to have more impact on the gold market. This
confirms the view that compared to silver, gold is considered as surro­
gate money, and thereby the relative response of gold to monetary
policy is higher (Batten et al., 2010). In general, the overall spillover
results indicate that precious metals are more immune to policy un­
certainties than equity, thereby justifying the safe investment

5
A.A. Shah et al. Resources Policy 74 (2021) 102260

Table 4 Table 6
Correlation pairs. Spillover table for the frequency band: 3.14 to 0.79.
Gold Silver Equity MPU FPU Gold Silver Equity MPU FPU From

Gold 1.00 Gold 47.08 16.23 0.55 1.65 1.51 3.99

Silver 0.58 1.00 Silver 16.29 45.81 0.64 0.27 0.45 3.53
Equity − 0.10 0.06 1.00 Equity 0.60 0.14 62.51 6.78 5.45 2.59
MPU 0.14 0.04 − 0.19 1.00 MPU 0.71 0.24 2.98 22.63 7.18 2.22
FPU 0.12 0.09 − 0.06 0.58 1.00 FPU 0.38 0.16 1.13 3.63 11.27 1.06
To 3.60 3.35 1.06 2.46 2.92 13.39 %

opportunities of precious metals than equities against the shocks from

monetary and fiscal policy uncertainties (see Table 5).
Table 7
Further, to be able to capture the spillovers among policy un­
Spillover table for the frequency band: 0.79 to 0.39.
certainties, precious metals, and equity market at various time horizons,
Gold Silver Equity MPU FPU From
we decompose overall spillovers into 4 different frequencies.3 The se­
lection of these frequencies is not arbitrary but guided by the investment Gold 10.56 4.01 0.21 0.33 0.34 0.98
preferences of distinct market participants, such as fund managers, Silver 3.87 11.87 0.31 0.04 0.13 0.87
Equity 0.12 0.02 11.41 1.00 0.87 0.40
institutional investors, and central bankers. The results for frequency- MPU 0.38 0.03 3.47 14.35 5.01 1.78
based DY spillovers (BK) are shown in Table 6, Table 7, Table 8 and FPU 0.54 0.06 2.03 3.87 10.80 1.30
Table 9. It can be seen from these Tables that the contribution of shorter To 0.98 0.82 1.21 1.05 1.27 5.33 %
horizon followed by the longer horizon and medium horizons is the
most. The shorter horizon of 1–4 months contributes 13.39 % to the
overall spillover index, whereas the longer horizon of 1 year and above Table 8
contribute 8.35 %. While the time-horizon of 4–8 months and 8–12 Spillover table for the frequency band: 0.39 to 0.26.
months contribute 5.33 % and 2.58 % respectively to the overall spill­
Gold Silver Equity MPU FPU From
over index. This implies that overall spillovers (interdependence) among
Gold 3.67 1.44 0.06 0.08 0.10 0.34
the system variables are largely driven by shorter followed by longer and
Silver 1.42 4.27 0.10 0.04 0.11 0.33
medium time horizons. Since the sum of overall spillovers at various Equity 0.03 0.01 3.52 0.23 0.22 0.10
frequencies equals DY overall spillover index, this provides the valida­ MPU 0.18 0.01 1.80 6.95 2.46 0.89
tion of overall spillovers (Table 10). FPU 0.39 0.03 1.52 2.70 7.52 0.93
Next, the results for frequency-based cross-spillovers indicate that To 0.41 0.30 0.69 0.61 0.58 2.58 %

the interdependence between gold and silver is highest during shorter

horizon of 1–4 months followed by medium horizon of 4–8 months and
longer horizon of 1 year and above. For monetary and fiscal policy un­ Table 9
certainties, we find that the interdependence between them is largely Spillover table for the frequency band: 0.26 to 0.00.
due to longer horizon. Thus it can be concluded that in the long run, Gold Silver Equity MPU FPU From
monetary and fiscal policies in the US are well-coordinated, hence their
Gold 8.38 3.34 0.12 0.14 0.19 0.76
uncertainties, then in the short-run. Similarly, the cross-spillover results Silver 3.54 9.97 0.12 0.21 0.53 0.88
for policy uncertainties and equity markets show that the interdepen­ Equity 0.03 0.02 6.65 0.19 0.20 0.09
dence between policy uncertainties and equity markets is mostly due to MPU 0.49 0.00 5.11 19.21 6.82 2.49
shorter horizons. This is logical given the rapid response of financial FPU 1.78 0.11 6.91 11.87 33.30 4.13
To 1.17 0.70 2.45 2.48 1.55 8.35 %
market participants to various events. The frequency-based cross-spill­
over results for policy uncertainties and gold shows that shorter horizon
plays the dominant role, whereas for silver both shorter and longer
horizons play almost equal roles. The results are justifiable, considering Table 10
the role of gold as a close monetary asset, and thereby the rapid spillover DY (12) and BK (18) net-directional pairwise spillovers.
transmission between policy formulations and the gold market. Whereas DY BK
silver acts both as a monetary asset and an indicator of the long-term 1–4 4–8 8–12 12 and
performance of the economy due to its relatively more industrial use. months months months above
Thus it can be said that spillovers between equity and the policy Gold- MPU 0.0861 0.1866 − 0.0110 − 0.0191 − 0.0703
Gold- FPU − 0.1908 0.2250 − 0.0394 − 0.0586 − 0.3180
Silver- 0.0552 0.0061 0.0018 0.0069 0.0403
Table 5 MPU
DY overall spillover table. Silver- FPU 0.1703 0.0582 0.0139 0.0155 0.0833
Gold Silver Equity MPU FPU From Equity- − 1.0301 0.7603 − 0.4931 − 0.3130 − 0.9840
MPU
Gold 69.70 25.02 0.94 2.20 2.14 6.06 Equity- − 0.9689 0.8622 − 0.2326 − 0.2600 − 1.3400
Silver 25.13 71.93 1.18 0.56 1.21 5.61 FPU
Equity 0.78 0.19 84.09 8.21 6.73 3.18
MPU 1.76 0.28 13.36 63.13 21.46 7.37
FPU 3.10 0.36 11.58 22.06 62.90 7.42 uncertainties are mostly driven by shorter horizons, whereas the spill­
To 6.15 5.17 5.41 6.61 6.31 29.65 %
overs between precious metals and policy uncertainties are driven by
longer horizons.
Further, Table 10 shows the results for overall and frequency-based
net-pairwise spillovers between precious metals, equity, and policy
3 uncertainties. The DY net-pairwise spillovers provide information about
The frequency range 3.14 to 0.79, 0.79 to 0.39, 0.39 to 0.26, 0.26 to 0.00
the relative strength of shocks between pairs of variables, while its fre­
and 0.10 represent 1–4 months, 4–8 months, 8–12 months, year and above time
horizons respectively. quency counterpart (BK) shows the influence of various time horizons on

6
A.A. Shah et al. Resources Policy 74 (2021) 102260

overall net-pairwise results. The positive value of net-pairwise spillover

between, say xi and xj indicate that a shock in xi has more influence on
the price variation in xj while the negative value shows the other way
round impact. It can be seen from Table 10 that the net-spillover be­
tween gold and monetary policy uncertainty is positive and it is driven
by the shorter horizon of 1–4 months. While the spillovers between gold
and fiscal policy uncertainty are negative which is mostly driven by
longer horizons. Similarly, the net-spillovers between silver and policy
uncertainties are positive, driven by all the horizons. Finally, the spill­
over between equity and policy uncertainties is negative which is mostly
driven by longer horizons. The shorter horizon, on the other hand, is
characterized by the transmission of shocks from equity markets to
policy uncertainties. Thus it can be said that the precious metals and
equity market are more influenced by monetary and fiscal policy for­ Fig. 3. BK spillover plot for the frequency band: 3.14 to 0.79.
mulations than the other way around, which is mostly driven by the
longer horizon. However, for a shorter time horizon, equity markets
have more influence on monetary and fiscal policy uncertainty. The
results are helpful for the portfolio managers and institutional investors
for the strategic allocation of their funds. For policymakers, the results
suggest that the potential impacts of monetary and fiscal policies on the
financial market should be taken into consideration.

5.2. Time and frequency varying spillovers

The overall and frequency-based full-sample analysis, although

useful for preliminary static analysis, is silent on the evolution of spill­
overs among policy uncertainties, equity, and precious metal markets.
Interestingly, the study period has gone through a series of events that
could have a substantial impact on the spillover transmission among
Fig. 4. BK spillover plot for the frequency band: 0.79 to 0.39.
these variables. In particular, the study period witnessed the 9/11
terrorist attack, the GFC, the EDC, the Sino-US trade war, and the Covid-
19 pandemic. To be able to capture the possible impact of these events
on the evolution of spillovers among the system variables, we resort to
the rolling window analysis of spillovers (Fig. 1)
For computation purposes, we Follow Baruník and Křehlík (2018)
and set the length of forecast horizons equal to 100 and the rolling size
equal to one-fourth of the sample size.4 The time-varying overall spill­
over plots for both DY and its frequency counterpart BK are shown in
Fig. 2, Fig. 3, Fig. 4, Fig. 5 and Fig. 6. It can be seen from these plots that
the nature of interdependence among the considered variables is dy­
namic. For example, the average connectedness (29.65 %) ranges from
20 % to 40 %. In particular, we find an increase in spillovers among
policy uncertainties, equity, and the precious metal market is aligned

Fig. 5. BK spillover plot for the frequency band: 0.39 to 0.26.

Fig. 2. DY overall spillover plot.

Fig. 6. BK spillover plot for the frequency band: 0.39 to 0.26.

4
The spillover results don’t change with the forecast horizons of greater than
9 months. We also provide robustness checks for time-varying spillovers at
different window sizes.

7
A.A. Shah et al. Resources Policy 74 (2021) 102260

with the aforementioned global events. This is logical given that these
events create an environment of economic, financial, and policy un­
certainty, and thereby the flight to safety. This is consistent with the
findings of King and Wadhwani (1990); Zhang and Broadstock (2018);
Gozgor et al. (2019) and Liu et al. (2020) that during crisis and uncertain
times, there is an increase in the transmission of shocks across different
markets. Further, the frequency-based time-varying overall spillover
plots show that the shorter horizon, followed by longer and medium
horizons drive DY overall spillovers during the studied period, thus
confirming the empirical results drawn from the overall static measures
of spillover.
Further, the time-varying DY and BK net-directional pairwise spill­
over plots for policy uncertainties with precious metals and equity are
shown in Fig. 7, Fig. 8, Fig. 9, Fig. 10 and Fig. 11 . These plots provide
the magnitude of the relative strength of shocks between pairs of vari­
ables both over time across various frequencies. It can be seen from the
Fig. 8. BK net-directional pairwise spillover plot for the frequency band: 3.14
visual inspection of DY net-directional pairwise spillover plots that gold to 0.79.
transmits more information to monetary policy uncertainty than it re­
ceives from monetary policy uncertainty. The frequency counterpart of
the pairwise spillover plots between gold and monetary policy uncer­
tainty shows that a similar pattern is observed at the shorter time ho­
rizon. This implies that the shorter horizon plays the dominant role in
driving overall spillovers between gold and monetary policy uncer­
tainty. However, for fiscal policy uncertainty, gold receives more in­
formation from fiscal policy uncertainty than it transmits to fiscal policy
uncertainty. Its frequency counterpart indicates that spillovers between
gold and fiscal policy uncertainty are driven by longer time horizons. For
silver, the DY net-directional pairwise spillover plots show that silver
transmits more information to policy uncertainties (monetary and fiscal)
rather than the other way around, which is mostly driven by the longer
time horizon. The DY net-directional pairwise spillover plots between
equity and policy uncertainties show that the equity market is influ­
enced by the spillovers from the monetary and fiscal policy uncertainties
most of the time. The BK spillovers indicate that longer horizons drive
Fig. 9. BK net-directional pairwise spillover plot for the frequency band: 0.79
pairwise spillovers between equity and policy uncertainties. However,
to 0.39.
the shorter horizon is characterized by the transmission of shocks from
equity to policy uncertainties. These results confirm the empirical
findings derived from overall and frequency-based spillovers.

6. Robustness

To ensure that the results are not incidental, we evaluate the sensi­

Fig. 10. BK net-directional pairwise spillover plot for the frequency band: 0.39
to 0.26.

rolling window sizes that the pattern and magnitude of spillovers don’t
differ significantly, thus validating our empirical results.6

7. Conclusion and policy implications

Fig. 7. DY Net-Directional pairwise Spillover Plot.
In this paper, we investigated time and frequency-based spillovers
tivity of overall connectedness to various rolling window sizes in Fig. 12 among policy uncertainties (monetary and fiscal), precious metals, and
.5 It can be seen from overall connectedness plots for 50, 100, and 150 equity. We explored the immunity of the precious metals and equity

5 6
The shorter the window size, the larger are the fluctuations in the plot, and For the sake of brevity, we don’t report robustness checks at various fre­
the longer the window size, the smoother the plot. quencies, but, can be produced on demand.

8
A.A. Shah et al.
Fig. 11. BK net-directional pairwise spillover plot for the frequency band: 0.26
to 0.00.
Fig. 12. Overall Spillovers with different rolling-window sizes.
market to the shocks from monetary and fiscal policy uncertainties both
over time and across various frequencies. The monthly data of precious
metals, equity prices, and monetary and fiscal policy uncertainty mea­
sures from January 1987 to November 2020 have been used to draw
inferences. The overall spillovers indicated weaker interdependence
among policy uncertainties, precious metals, and equity markets.
However, the cross-spillover results showed that the nature of interde­
pendence between these variables shows different intensities. In
particular, the results showed that the spillovers between policy un­
certainties and equity were higher than the spillovers between policy
uncertainties and precious metals. We further decomposed the overall
spillovers into various frequencies and found that shorter time horizons
followed by longer and medium time horizons drive overall spillovers.
The frequency-based cross-spillovers show that the transmission of
spillovers between policy uncertainties and equity is rapid. Whereas, the
transmission of spillovers between policy uncertainties and precious
metals is relatively slow. Finally, the rolling window analysis of spill­
overs indicated that the nature of interdependence among policy un­
certainties, precious metals, and equity markets is dynamic in nature. In
particular, the time-varying spillover plots indicated that the connect­
edness among the considered variables increases during the crisis pe­
riods, such as the 9/11 terrorist attack, the global financial crisis, the
European debt crisis, the Sino-US trade tensions, and the global Covid-
19 pandemic. In sum, the study authenticates the immunity of
precious metals against monetary and fiscal policy uncertainties than
equity. The results are important to the financial market participants for
the management of risk induced by monetary and fiscal policy
uncertainties.
CRediT authorship contribution statement
Adil Ahmad Shah: Methodology, Analysis using Software, Writing –
review & editing. Arif Billah Dar: Conceptualization, Formal analysis,
Writing – original draft. N.R. Bhanumurthy: Visualization, Investiga­
tion, Writing – review & editing.
9
Resources Policy 74 (2021) 102260
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