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Short- and Long-Run Determinants of Commodity Price Volatility

Author

Listed:
  • Berna Karali
  • Gabriel J. Power

Abstract

To explain price volatility in the U.S. agricultural, energy, and metal futures markets, we estimate a model of common and commodity-specific, high- and low-frequency factors by building on the spline-GARCH model of Engle and Rangel (2008). A better model fit results from allowing the unconditional variance to slowly change over time. Moreover, the persistence of volatility shocks is shown to be much weaker than what standard GARCH models imply. Combining the volatility results with monthly macroeconomic indicator data, we find that decomposing realized volatility into high- and low-frequency components better reveals the impact of slowly-evolving aggregate variables on price volatility. Moreover, over the period 1990--2005, most of the macroeconomic variables had similar effects within the same commodity category (e.g. grain), but their effects differed across commodity groups (e.g. grain versus livestock). Over the period 2006--2009, however, commodity-specific factors dominated common factors. Copyright 2013, Oxford University Press.

Suggested Citation

  • Berna Karali & Gabriel J. Power, 2013. "Short- and Long-Run Determinants of Commodity Price Volatility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(3), pages 724-738.
  • Handle: RePEc:oup:ajagec:v:95:y:2013:i:3:p:724-738
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    File URL: http://hdl.handle.net/10.1093/ajae/aas122
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    Citations

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    Cited by:

    1. Cornelis Gardebroek & Manuel A. Hernandez & Miguel Robles, 2016. "Market interdependence and volatility transmission among major crops," Agricultural Economics, International Association of Agricultural Economists, vol. 47(2), pages 141-155, March.
    2. Kornher, Lukas & Kalkuhl, Matthias, 0. "Food Price Volatility in Developing Countries and its Determinants," Quarterly Journal of International Agriculture, Humboldt-Universität zu Berlin, vol. 52.
    3. Li, Jian & Chavas, Jean-Paul & Etienne, Xiaoli & Li, Chongguang, 2016. "Commodity Price Bubbles and Macroeconomics: Evidence from Chinese Agricultural Markets," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235068, Agricultural and Applied Economics Association.
    4. Ye, Shiyu & Karali, Berna & Ramirez, Octavio A., 2014. "Event Study of Energy Price Volatility: An Application of Distributional Event Response Model," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170207, Agricultural and Applied Economics Association.
    5. Yannick Le Pen & Benoît Sévi, 2013. "Futures trading and the excess comovement of commodity prices," Post-Print hal-01613916, HAL.
    6. repec:spr:agfoec:v:5:y:2017:i:1:d:10.1186_s40100-017-0078-9 is not listed on IDEAS
    7. de Nicola, Francesca & De Pace, Pierangelo & Hernandez, Manuel A., 2014. "Co-movement of major commodity price returns: A time-series assessment:," IFPRI discussion papers 1354, International Food Policy Research Institute (IFPRI).
    8. Huchet, Nicolas & Fam, Papa Gueye, 2016. "The role of speculation in international futures markets on commodity prices," Research in International Business and Finance, Elsevier, vol. 37(C), pages 49-65.
    9. Nguyen, Duc Khuong & Walther, Thomas, 2017. "Modeling and forecasting commodity market volatility with long-term economic and financial variables," MPRA Paper 84464, University Library of Munich, Germany, revised Jan 2018.
    10. Karali, Berna & Ramirez, Octavio A., 2014. "Macro determinants of volatility and volatility spillover in energy markets," Energy Economics, Elsevier, vol. 46(C), pages 413-421.
    11. Genevre Covindassamy & Michel A. Robe & Jonathan Wallen, 2016. "Sugar With Your Coffee?: Financials, Fundamentals, and Soft Price Uncertainty," IDB Publications (Working Papers) 8588, Inter-American Development Bank.
    12. repec:ipg:wpaper:2013-019 is not listed on IDEAS
    13. Nicola, Francesca de & De Pace, Pierangelo & Hernandez, Manuel A., 2016. "Co-movement of major energy, agricultural, and food commodity price returns: A time-series assessment," Energy Economics, Elsevier, vol. 57(C), pages 28-41.
    14. Yannick Le Pen & Benoît Sévi, 2013. "Futures Trading and the Excess Comovement of Commodity Prices," Working Papers halshs-00793724, HAL.
    15. repec:fpr:export:1344 is not listed on IDEAS
    16. Emiliano Magrini & Ayca Donmez, 2013. "Agricultural Commodity Price Volatility and Its Macroeconomic Determinants: A GARCH-MIDAS Approach," JRC Working Papers JRC84138, Joint Research Centre (Seville site).
    17. Ojogho, Osaihiomwan & Egware, Robert Awotu, 4. "Price Generating Process And Volatility In Nigerian Agricultural Commodities Market," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 3(4).
    18. Trujillo-Barrera, Andres & Pennings, Joost M.E., 2013. "Energy and Food Commodity Prices Linkage: An Examination with Mixed-Frequency Data," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150465, Agricultural and Applied Economics Association.
    19. repec:eee:ecmode:v:70:y:2018:i:c:p:543-560 is not listed on IDEAS
    20. Dimitrios Bakas & Athanasios Triantafyllou, 2017. "The Impact of Uncertainty Shocks on the Volatility of Commodity Prices," Working Paper series 17-31, Rimini Centre for Economic Analysis.
    21. repec:ipg:wpaper:19 is not listed on IDEAS

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