Uncertainty diffusion across commodity markets
Isabelle Cadoret and
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Jacques Minlend: Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France
Isabelle Cadoret: Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France
Tovonony Razafindrabe: Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France
Economics Working Paper Archive (University of Rennes 1 & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS
While there exist numerous studies on volatility transmission across commodity markets, particularly across oil and agricultural markets, uncertainty diffusion across commodity markets remains absent from the literature. This situation is mainly due to the lack of an appropriate measure of commodity price uncertainty, which is known to be different from volatility. This study focuses on the measure of commodity price uncertainty and how it is transferred from one commodity market to another. Our contribution is twofold: (i) we construct, for each group of commodity markets and different maturities, an aggregate predictability-based measure of uncertainty, and (ii) we analyze uncertainty diffusion across different commodity markets using a vector autoregressive model. Our findings show that: first, there is a bi-causal uncertainty transfer between agriculture, energy and industry markets, except for precious metals markets. Second, the industrial commodity market is also assumed to be the transmission channel of commodity uncertainty spread, given its close link with the global economic activity. Notably, we discuss the fact that industrial uncertainty can be used as a proxy for macroeconomic uncertainty. Finally, precious metals insensitivity to other markets’ shocks reinforces its nature of safe haven.
Keywords: Commodity uncertainty; vector autoregressive model; macroeconomic uncertainty (search for similar items in EconPapers)
JEL-codes: C32 E32 Q02 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:tut:cremwp:2021-02
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