Time-Varying Impacts of Geopolitical Risk on Industrial Commodity Markets: A Comparative Study of China, the US and the EU

Abstract

In recent years, major international economic frictions and regional security tensions have intensified, contributing to a sustained rise in global geopolitical risk (GPR) and exerting profound influences on commodity markets characterized by both physical and financial attributes. Natural gas, aluminum, and copper, as key commodities in the energy and industrial sectors, exhibit price fluctuations that are closely associated with industrial chain stability and macroeconomic performance. This study focuses on the natural gas, aluminum, and copper markets across three major economic regions-China, the United States, and the European Union-by constructing a time-varying parameter structural vector autoregression model with stochastic volatility (TVP-SVAR-SV) and employing Markov Chain Monte Carlo (MCMC) methods for parameter estimation. Combined with impulse response analysis and comparative examination of major events, this paper systematically investigates the time-varying transmission patterns of geopolitical risk across nine segmented commodity markets. The empirical results indicate that: first, the transmission of geopolitical risk to commodity markets demonstrates a clear unidirectional characteristic, with geopolitical risk functioning as the primary external driver of market volatility, while feedback effects from commodity market fluctuations to geopolitical risk remain limited; second, transmission effects exhibit pronounced horizon dependence and short-term persistence, as strong short-term shocks gradually converge over longer horizons; third, significant heterogeneity exists across commodity categories and regions, with energy commodities displaying higher overall sensitivity than metal commodities, the European market experiencing comparatively stronger impacts, and the Chinese market showing relatively greater resilience supported by policy coordination and well-integrated industrial systems; fourth, major global public health emergencies and large-scale international economic frictions amplify transmission mechanisms, with shock intensity increasing in line with the severity of external disturbances. This study not only enriches the theoretical understanding of the dynamic relationship between geopolitical risk and commodity markets but also provides valuable empirical evidence for policymakers designing differentiated regulatory frameworks and for enterprises seeking to manage exposure to commodity price volatility.