Commodity price uncertainty comovement: Does it matter for global economic growth?

Laurent Ferrara, Aikaterini Karadimitropoulou and Athanasios Triantafyllou

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

Abstract: Global economic activity is surrounded by increasing uncertainties from various sources. In this paper, we focus on commodity prices and estimate a global commodity uncertainty factor by capturing comovement in volatilities of major agricultural, metals and energy commodity markets through a group-specific Dynamic Factor Model. Then, by computing impulse response functions estimated using a small-scale Structural VAR model, we find that an increase in the common commodity price uncertainty results in a substantial and persistent drop in investment and trade, for a set of emerging and advanced economies. We also show that a global commodity uncertainty shock is more detrimental for shortand long-term economic growth than usual financial and economic policy uncertainty shocks. Last, our methodology turns out to be an efficient way to disentangle “good†and “bad†macroeconomic effects of oil price uncertainty: when an oil price uncertainty shock is common to all commodities, then the macroeconomic effect is likely to be negative, similar to a global demand shock. However, when the uncertainty shock is only specific to the oil market, the short-run effect tends to be positive.

Keywords: Commodity uncertainty; dynamic factor model; investment; trade flows; comovement; uncertainty shocks (search for similar items in EconPapers)
JEL-codes: C51 C53 Q02 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2022-01
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (4)

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Working Paper: Commodity price uncertainty comovement: Does it matter for global economic growth? (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2022-08

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