Uncertainty diffusion across commodity markets

Isabelle Cadoret (), Jacques Minlend () and Tovonony Razafindrabe
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Isabelle Cadoret: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique
Jacques Minlend: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: While numerous studies investigate volatility transmission across commodity markets, particularly oil and agricultural markets, uncertainty diffusion across commodity markets remains absent from the literature. This circumstance is primarily related to the lack of appropriate measures of commodity price uncertainty, which differs from volatility. This study focuses on measuring commodity price uncertainty and how it is transferred from one commodity market to another. Our contributions are twofold. (i) We construct an aggregate predictability-based measure of uncertainty for each group of commodity markets and different maturities, and (ii) we analyze uncertainty diffusion across different commodity markets using a vector autoregressive model. Our findings clearly demonstrate a bi-causal uncertainty transfer between agriculture, energy, and industrial markets, excluding precious metals markets. Additionally, the industrial commodity market is assumed to be the transmission channel of commodity uncertainty spread, given its close link with global economic activity. Notably, we validate the efficacy of using industrial uncertainty as a proxy for macroeconomic uncertainty. Finally, our confirmation of precious metals' insensitivity to other markets' shocks reinforces its nature as a safe haven.

Keywords: Commodity uncertainty; vector autoregressive model; macroeconomic uncertainty (search for similar items in EconPapers)
Date: 2022
Note: View the original document on HAL open archive server: https://univ-rennes.hal.science/hal-03820448v2
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Published in Applied Economics, 2022, ⟨10.1080/00036846.2022.2129041⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03820448

DOI: 10.1080/00036846.2022.2129041

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