The connectedness of Energy Transition Metals

Abstract. We assess the degree of connectedness among 16 metals that are critical for the production of clean energy technologies. These commodities are the constituents of the Energy Transition Metals (ETMs) price index maintained by the International Monetary Fund and comprise base, precious, and minor metals. We rely on Vector Autoregressive models and generalised forecast error variance decomposition to quantify spillovers among ETMs returns and volatilities. By calculating both static and dynamic measures of connectedness, we gain insight into the patterns of shock transmission between ETMs. Our static analysis reveals that base and precious metals are net shock transmitters, while minor and most battery metals are net receivers. By splitting the analysis into three groups, we find that almost half of the connectedness originates within each group, whereas the other half is due to cross-group spillovers. Moreover, we find that the system-wide connectedness of returns is positively correlated with proxies of economic activity, whereas volatility connectedness seems to be more related to global economic policy uncertainty.