How does economic policy uncertainty drive time-frequency connectedness across commodity and financial markets?

This study provides novel insight to the prior literature on the time-frequency connectedness across commodity and financial markets while considering the effect of economic policy uncer-tainty (EPU). We utilize DY and BK methods combined with the rolling window technique to examine how the connectedness varies over time and across frequencies. Subsequently, we establish regime-switching models to evaluate the influence of EPU on the connectedness and provide implications under different economic states. Our empirical results unveil robust short -term information, volatility, or risk transmission among commodity and financial markets, as they are the main contributors and receivers of shocks, especially during the crisis. Moreover, we identify EPU as a remarkable driver of the interactions among these markets in static and switching regimes. Finally, the optimal weight and hedge ratio responses to EPU are regime-dependent and EPU is more economically important in determining short-term investment. Our findings present vital implications that all market participants should consider the EPU level and prevailing economic conditions when selecting hedging strategies.