The macroeconomic effects of commodity price uncertainty

Trung Duc Tran

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper studies the macroeconomic effects of commodity price uncertainty (CPU) shocks. Using Australia as a case study, an econometric-based CPU index is proposed to reveal that Australia has experienced an unprecedented increase in uncertainty from the commodity market recently. Evidence from a VAR model shows that CPU shocks have a larger recessionary impact than other relevant uncertainty shocks such as financial, economic and trade policy uncertainty. The empirical results are then interpreted in a non-linear multisector DSGE model of the Australian economy by estimating key parameters in the DSGE model to match its responses to the VAR responses. CPU shocks in the DSGE model, via foreign commodity export demand with price rigidity, trigger a precautionary response and cause a decline in real economic activity.

Keywords: Commodity Price Uncertainty; Small Open Economy; VAR-DSGE (search for similar items in EconPapers)
JEL-codes: C32 E32 F41 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2021-01
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-mac and nep-opm
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2021-09

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