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The Impact of Uncertainty Shocks on the Volatility of Commodity Prices

Dimitrios Bakas () and Athanasios Triantafyllou ()
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Athanasios Triantafyllou: Essex Business School, University of Essex, UK

Working Paper series from Rimini Centre for Economic Analysis

Abstract: In this paper, we empirically examine the impact of uncertainty shocks on the volatility of commodity prices. Using alternative measures of economic uncertainty for the U.S. we estimate their effects on commodity price volatility by employing both VAR and OLS regression models. We find that the unobservable economic uncertainty measures of Jurado et al. (2015) have a significant and long-lasting positive impact on the volatility of commodity prices. Our results indicate that a positive shock in both macroeconomic and financial uncertainty leads to a persistent increase in the volatility of the broad commodity market index and of the individual commodity prices, with the macroeconomic effect being more significant. The impact is stronger in energy commodities compared to the agricultural and metals markets. In addition, our findings show that the measure of unpredictability of the macroeconomic environment has the most significant impact on the commodity price volatility when compared to the observable measures of economic uncertainty that have a rather small and transitory effect. Finally, we show that uncertainty in the macroeconomy is significantly reduced after the occurrence of large commodity market volatility episodes.

Keywords: Economic Uncertainty; Commodity Prices; Volatility (search for similar items in EconPapers)
JEL-codes: C22 E32 G13 O13 Q02 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2017-12
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