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Natural resources commodity prices volatility: Evidence from COVID-19 for the US economy

Yang Zhou, Xiaoxiao Wang, Rebecca Kechen Dong, Ruihui Pu and Xiaoguang Yue ()

Resources Policy, 2022, vol. 78, issue C

Abstract: Volatility in natural resources commodity prices is prevailing for a longer period. However, after the Covid-19 pandemic, most economical and financial markets were affected, and the natural resources commodity market was greatly affected. Besides, the pandemic's closing or postponement of the industrial sector further fuels uncertainty in the natural resources commodity market. Therefore, it is important to analyze whether volatility exists in natural resources commodity prices during the pandemic period? In this regard, the current study investigated price volatility in copper and crude oil prices during the Covid-19 while using the most recent and extended dataset from January 02, 2019, to October 08, 2021, in the case of the US. For empirical examination, this study used the breakpoint unit root test, which illustrates that the leveled data is non-stationary while the first differenced data is stationary, where both leveled and first differenced data demonstrate the breakpoints in time series. This study uses the threshold generalized autoregressive conditional heteroscedasticity (TGARCH) and exponential generalized autoregressive conditional heteroscedasticity (EGARCH) to analyze natural resource commodity price volatility. The empirical findings uncover that both variables are volatile during the Covid-19 pandemic. However, the negative shock of the Covid-19 pandemic makes the crude oil price more volatile relative to copper prices. Besides, the previous variances are also positively associated with the current variances of both variables. The findings also reveal that copper could be a safe haven for reducing volatility in natural resources. Based on the empirical findings, this study suggests ensuring macroeconomic stability and reconsidering the traditional price-fixing or price ceiling policies to tackle volatility in the Covid-19 pandemic.

Keywords: Natural resources; Volatility; Crude oil; Copper; Breakpoint (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.resourpol.2022.102895

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