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The impact of uncertainty shocks on the volatility of commodity prices

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  • Bakas, Dimitrios
  • Triantafyllou, Athanasios

Abstract

In this paper, we empirically examine the impact of uncertainty shocks on the volatility of commodity prices. Using several alternative measures of economic uncertainty for the U.S., we estimate their effects on commodity price volatility through VAR analysis. We find that the latent uncertainty shocks have the most significant impact on commodity price volatility when compared to observable measures of economic uncertainty. In specific, our results show that the unobservable economic uncertainty measures of Jurado et al. (2015) have a significant and long-lasting positive effect on the volatility of commodity prices. Our findings indicate that a positive shock in unobservable macroeconomic and financial uncertainty leads to a persistent increase in the volatility of the broad commodity market index and of individual commodity prices, with the macroeconomic effect being more significant. Finally, we show that the impact is stronger in energy commodities compared to agricultural and metals markets.

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  • Bakas, Dimitrios & Triantafyllou, Athanasios, 2018. "The impact of uncertainty shocks on the volatility of commodity prices," Journal of International Money and Finance, Elsevier, vol. 87(C), pages 96-111.
  • Handle: RePEc:eee:jimfin:v:87:y:2018:i:c:p:96-111
    DOI: 10.1016/j.jimonfin.2018.06.001
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    Cited by:

    1. Athanasios Triantafyllou & Dimitrios Bakas & Marilou Ioakimidis, 2019. "Commodity Price Uncertainty as a Leading Indicator of Economic Activity," Working Paper series 19-03, Rimini Centre for Economic Analysis.

    More about this item

    Keywords

    Economic uncertainty; Commodity prices; Volatility;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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