The impact of international commodity price shocks on macroeconomic fundamentals: Evidence from the US and China

Chenqi Qian, Tianding Zhang and Jie Li

Resources Policy, 2023, vol. 85, issue PB

Abstract: In light of the increased volatility in international commodity markets, we aim to investigate the effects of international commodity price shocks on the macroeconomic fundamentals of the United States and China. We expand upon existing literature by employing the Dynamic Hierarchical Factor Model (DHFM) to analyze commodities across different sectors. This approach allows us to uncover the heterogeneity and specific synergies among various commodity categories. Furthermore, we construct the Factor Augmented Vector Autoregression Model (FAVAR) and the Time-varying Parameter FAVAR model, utilizing the common factors extracted and monthly data on fundamental macroeconomic variables from the US and China. By conducting impulse response analysis, we empirically demonstrate the impact of international commodity price shocks on key macroeconomic indicators, including industrial production, CPI, interest rates, stock prices, and exchange rates. Moreover, we provide evidence that these impacts exhibit significant variations over time, particularly in response to major global events such as the 2008 Global Financial Crisis, the 2020 COVID-19 pandemic, and the 2022 Russia-Ukraine conflict crisis. Our findings yield valuable insights for investors, researchers, and policymakers seeking to understand the influence of international commodity prices on macroeconomic conditions.

Keywords: International commodity prices; Macroeconomic fundamentals; Dynamic hierarchical factor model; Factor augmented VAR model; Time-varying parameter FAVAR (search for similar items in EconPapers)
JEL-codes: C22 E44 Q02 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:85:y:2023:i:pb:s0301420723006153

DOI: 10.1016/j.resourpol.2023.103904

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