Monetary Policies on Green Financial Markets: Evidence from a Multi-Moment Connectedness Network

TL;DR

This study develops a multi-moment connectedness network approach to analyze how monetary policy shocks influence the interconnectedness of green financial markets, revealing dynamic effects across different moments and timeframes.

Contribution

It introduces a novel multi-moment network method to assess green market interconnectedness and its response to monetary policy shocks, providing new insights into sustainable financial stability.

Findings

Connectedness varies with moments like returns, volatility, skewness, kurtosis.

Tight monetary shocks initially increase connectedness, then fade over time.

Loose shocks may decrease connectedness after one year.

Abstract

This paper introduces a novel multi-moment connectedness network approach for analyzing the interconnectedness of green financial market. Focusing on the impact of monetary policy shocks, our study reveals that connectedness within the green bond and equity markets varies with different moments (returns, volatility, skewness, and kurtosis) and changes significantly around Federal Open Market Committee (FOMC) events. Static analysis shows a decrease in connectedness with higher moments, while dynamic analysis highlights increased sensitivity to event-driven shocks. We find that both tight and loose monetary policy shocks initially elevate connectedness within the first six months. However, the effects of tight shocks gradually fade, whereas loose shocks may reduce connectedness after one year. These results offer insight to policymakers in regulating sustainable economies and investment managers in strategizing asset allocation and risk management, especially in environmentally focused markets. Our study contributes to understanding the complex dynamics of the green financial market in response to monetary policies, helping in decision-making for sustainable economic development and financial stability.