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Commodity Price Uncertainty as a Leading Indicator of Economic Activity

Author

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  • Bakas, Dimitrios
  • Ioakimidis, Marilou
  • Triantafyllou, Athanasios

Abstract

In this paper we examine the impact of commodity price uncertainty on US economic activity. Our empirical analysis indicates that uncertainty in agricultural, energy and metals markets depresses US economic activity and acts as an early warning signal for US recessions. Our VAR analysis shows that uncertainty shocks in agricultural and metals markets have a more long-lasting dampening effect on US economic activity and its components, when compared to the effect of oil price uncertainty shocks. Finally, we show that when accounting for the effects of macroeconomic and monetary factors, the negative dynamic response of economic activity to agricultural and metals price uncertainty shocks remains unaltered, while the respective macroeconomic response to energy uncertainty shocks is significantly reduced due to either systematic policy reactions or random shocks in monetary policy.

Suggested Citation

  • Bakas, Dimitrios & Ioakimidis, Marilou & Triantafyllou, Athanasios, 2020. "Commodity Price Uncertainty as a Leading Indicator of Economic Activity," Essex Finance Centre Working Papers 27361, University of Essex, Essex Business School.
    • Handle: RePEc:esy:uefcwp:27361
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    Cited by:

    1. Narayan, Shivani & Kumar, Dilip, 2024. "Unveiling interconnectedness and risk spillover among cryptocurrencies and other asset classes," Global Finance Journal, Elsevier, vol. 62(C).
    2. Wei, Yu & Wang, Zhuo & Zhou, Xiaorui & Shang, Yue & Ren, Lin, 2024. "Are the leading indicators really leading? Evidence from mixed-frequency spillover approach," Finance Research Letters, Elsevier, vol. 69(PB).
    3. Christina Anderl & Guglielmo Maria Caporale, 2024. "Global Food Prices and Inflation," CESifo Working Paper Series 10992, CESifo.
    4. Melas Konstantinos D. & Michail Nektarios A. & Louca Kyriaki G., 2025. "Trade Uncertainty, Economic Policy Uncertainty and Shipping Costs," German Economic Review, De Gruyter, vol. 26(1), pages 15-33.
    5. Umar, Muhammad & Su, Chi-Wei & Rizvi, Syed Kumail Abbas & Shao, Xue-Feng, 2021. "Bitcoin: A safe haven asset and a winner amid political and economic uncertainties in the US?," Technological Forecasting and Social Change, Elsevier, vol. 167(C).

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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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