The Macroeconomic Fragility of Critical Mineral Markets

Wilson Kang (), Russell Smyth () and Joaquin Vespignani
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Wilson Kang: California Polytechnic State University, San Luis Obispo, U.S.A, https://orfalea.calpoly.edu/about-us/directory/wilson-kang/
Russell Smyth: Department of Economics, Monash University, Clayton, Australia

No 2025-01, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: This paper applies the macroeconomic fragility framework for studying the effects of supply chain disruptions, proposed by Acemoglu and Tahbaz-Salehi (2024), to critical minerals markets. A key prediction of the macroeconomic fragility framework is that equilibrium supply chains are inherently fragile, meaning that even small shocks can trigger cascading supply chain breakdowns that can significantly magnify the discontinuous response of aggregate supply to shocks, leading to higher volatility and prices of critical minerals. We highlight the important role that the non-technical risk premium plays in magnifying global supply chain shocks in the specific case of critical minerals. Using a mixed-frequency Structural VAR model with agnostic sign restrictions and newly constructed data on non-technical risk premiums, we estimate the impact of supply chain disruption, the non-technical risk premium and their interaction on the prices and volatility of six critical minerals. We find that global supply chain disruptions, magnified by non-technical risk premiums, significantly increase critical mineral prices and price volatility for all six critical minerals studied, indicating inefficient outcomes which we interpret as macroeconomic fragility in critical minerals markets.

Keywords: Global Supply Chain Disruption; Critical Minerals; Non-technical Risk Premiums; Macroeconomic Fragility (search for similar items in EconPapers)
JEL-codes: F62 Q30 Q43 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2025
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Published by the University of Tasmania. Discussion paper 2025-01

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Working Paper: The Macroeconomic Fragility of Critical Mineral Markets (2025)
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