Time-varying impact of geopolitical risk on natural resources prices: Evidence from the hybrid TVP-VAR model with large system

In this paper, we investigate the time-varying effects of geopolitical risks on various natural resources prices from October 1992 to October 2022. We divided natural resources into three groups: minerals, precious metals and industrial metals. The hybrid TVP-VAR model is utilized in order to solve the over-computation problem of the large-scale system with 20 variables. The model provides a more flexible and accurate approach to identify and determine whether geopolitical risk has a time-varying effect on certain resource price from data itself. The results showed that geopolitical risks have relatively obvious time-varying effect on most minerals, time-invariant effect on gold, platinum and industrial metals. Gold can act as a safe-haven to hedge the increase in geopolitical risk. The impulse intensity of geopolitical risk on resource price is generally stronger in the short term and much weaker in the long term. Under different historical time points, the impacts of geopolitical risk on some of the resources show different trends. The results indicate that regulations, early risk warning mechanisms and emergency plans should be established to ensure the stable supply of domestic resources and the smooth operation of the market when geopolitical events occur.