Intersectoral systemic risk spillovers between energy and agriculture under the financial and COVID-19 crises

Abstract

Considering the severity and frequency of industry-specific shocks, this paper examines how sector-induced contagion effects caused by significant crises (e.g., the global financial crisis and COVID-19) propagate between energy and agricultural sectors worldwide. Relevant literature fails to concern the influence of these cross-sectoral transmission mechanisms on the energy-agriculture nexus and its relevance. By modifying the copula-extreme value theory-marginal expected shortfall (Copula-EVT-MES) method and using daily commodity returns from 2005M3–2020M5, our study captures significant intersectoral systemic risk spillovers, with asymmetrical and persistent patterns in energy-agricultural pairs. Furthermore, the bioethanol production (physical channel) and the financialization of commodities (financial channel) mainly relate to the shock spillovers. Compared to the financial crisis, the systemic risk spillovers in the COVID-19 crisis rely more on the physical channel, which emphasizes the importance of bioenergy-related shocks. The macro-conditions and supply-demand shocks are also important determinants for such spillovers during the ongoing crisis.