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

Laurent Ferrara, Aikaterini Karadimitropoulou and Athanasios Triantafyllou

Essex Finance Centre Working Papers from University of Essex, Essex Business School

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 uncer- tainty 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 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 show that a global commodity uncertainty shock is more detrimental for economic growth than usual financial and economic policy uncertainty shocks. Last, our method- ology turns out to be a way to disentangle the macroeconomic effects of "good" and "bad" oil uncertainty: when an oil uncertainty shock is common to all commodities, then the macroeconomic effect is likely to be negative, but when this shock is specific to the oil market, the effect tends to be positive in the short run.

Keywords: Commodity uncertainty; Factor model; Investment; Trade flows (search for similar items in EconPapers)
Date: 2021-08-23
New Economics Papers: this item is included in nep-agr, nep-isf and nep-mac
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Citations: View citations in EconPapers (2)

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Working Paper: Commodity price uncertainty comovement: Does it matter for global economic growth? (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:esy:uefcwp:30945

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