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Do Commodity Prices Cause Financial Instability in the United States? A Time-Varying Perspective through Rolling Window Bootstrap Approach

In: HANDBOOK OF GLOBAL FINANCIAL MARKETS Transformations, Dependence, and Risk Spillovers

Author

Listed:
  • Muhammad Shahbaz
  • Syed Jawad Hussain Shahzad
  • Sandrine Kablan
  • Shawkat Hammoudeh

Abstract

This chapter examines the casual links between financial instability and commodity prices for the US economy. The monthly data of six commodity indices and US financial instability is used from January 1991 to September 2015. Using the bootstrap full-sample Granger causality test, the results show that causality runs from commodities to financial instability; however, the short-run parameters are unstable. To overcome the limitations of the full sample tests and to accommodate possible regime shifts, we apply dynamic Granger causality using bootstrap and rolling window techniques. Analogous to the parameter stability test results, the results show varying levels of the causal nexuses between commodity prices and financial instability. Over most of the sample period, increase in commodity prices cause financial instability. However, a reinforcing effect is observed during the turmoil market conditions of the global financial crisis in 2007–2008.

Suggested Citation

  • Muhammad Shahbaz & Syed Jawad Hussain Shahzad & Sandrine Kablan & Shawkat Hammoudeh, 2019. "Do Commodity Prices Cause Financial Instability in the United States? A Time-Varying Perspective through Rolling Window Bootstrap Approach," World Scientific Book Chapters, in: Sabri Boubaker & Duc Khuong Nguyen (ed.), HANDBOOK OF GLOBAL FINANCIAL MARKETS Transformations, Dependence, and Risk Spillovers, chapter 14, pages 335-357, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813236653_0014
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    Cited by:

    1. Anthony Adu-Asare Idun & Emmanuel Asafo-Adjei & Anokye Mohammed Adam & Zangina Isshaq, 2022. "Dynamic Connectedness between Indicators of the Ghana Stock Exchange Returns and Macroeconomic Fundamentals," Risks, MDPI, vol. 10(11), pages 1-31, November.

    More about this item

    Keywords

    Market Integration; Risk Management; Risk Assessment; Financial Uncertainty; Volatility; Financial Markets; Financial Development; Country Risks; Sovereign Debt Markets;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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