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The Impact of Uncertainty Shocks on the Volatility of Commodity Prices

Bakas, Dimitrios and Triantafyllou, Athanasios (2018) 'The Impact of Uncertainty Shocks on the Volatility of Commodity Prices.' Journal of International Money and Finance, 87. 96 - 111. ISSN 0261-5606

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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.

Item Type: Article
Uncontrolled Keywords: Economic uncertainty; Commodity prices; Volatility
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 22 Jun 2018 13:55
Last Modified: 29 Jun 2018 09:15
URI: http://repository.essex.ac.uk/id/eprint/22267

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