A study of the spillover effects of the Chinese CNY exchange rate market, energy market, and carbon market using the generalized autoregressive conditional heteroskedasticity (GARCH) model

Abstract With the establishment of China’s national unified carbon market, the relationship between the carbon market and capital market has become increasingly close. Therefore, the dynamic correlation and transmission effects between China’s carbon market and Chinese yuan (CNY) exchange rate has been studied. This paper aims to investigate the existence of spillover effects and transmission between the exchange rate market, energy market, and carbon market. It employs VEC-BEKK-GARCH (vector error correction model (VEC), Baba, Engle, Kraft and Kroner (BEKK) model, and generalized autoregressive conditional heteroskedasticity (GARCH)). These findings suggest that energy market significantly influences the volatility spillover effect in carbon market.