Do the energy and non-energy price indices co-move? A wavelet quantile investigation

Abstract

Energy price shocks frequently spill over into broader commodity markets, yet most evidence relies on average effects that mask tail risks and horizon-specific dynamics. To address this gap, we examine the nexus between the energy price index and the non-energy price index using monthly data from 1970M01–2022M04. We apply wavelet quantile regression to trace how pass-through varies across quantiles and time scales, accommodating nonlinearity and nonstationarity; wavelet quantile correlation provides a complementary validation. Results show a consistently positive impact of energy prices on non-energy prices—stronger in adverse (lower-tail) states and at medium-to-long horizons—and a bidirectional effect from non-energy to energy that likewise strengthens outside the center of the distribution. These patterns imply state-contingent, horizon-specific policy. In the short run, when correlations are weaker but volatility is acute, targeted stabilization (e.g. time-bound price supports for critical inputs) and rapid efficiency incentives can cushion shocks without locking in distortions. As co-movement intensifies over the medium to long run, policy should pivot to structural measures—predictable clean-energy investment frameworks, grid modernization, diversification of energy supply, and industrial decarbonization—to reduce systemic exposure and bolster resilience.