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Commodity price uncertainty comovement: Does it matter for global economic growth?

Ferrara, Laurent and Karadimitropoulou, Aikaterini and Triantafyllou, Athanasios (2021) Commodity price uncertainty comovement: Does it matter for global economic growth? Working Paper. Essex Finance Centre Working Papers, Colchester, Essex. (Unpublished)

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Abstract

Global economic activity is surrounded by increasing uncertainties from various sources. In this paper, we focus on commodity prices and estimate a global commodity uncer- tainty factor by capturing comovement in volatilities of major agricultural, metals and energy commodity markets through a group-specific Dynamic Factor Model. Then, by computing impulse response functions estimated using a Structural VAR model, we find that an increase in the common commodity price uncertainty results in a substantial and persistent drop in investment and trade for a set of emerging and advanced economies. We show that a global commodity uncertainty shock is more detrimental for economic growth than usual financial and economic policy uncertainty shocks. Last, our method- ology turns out to be a way to disentangle the macroeconomic effects of "good" and "bad" oil uncertainty: when an oil uncertainty shock is common to all commodities, then the macroeconomic effect is likely to be negative, but when this shock is specific to the oil market, the effect tends to be positive in the short run.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Commodity uncertainty, Factor model, Investment, Trade flows
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 23 Aug 2021 12:09
Last Modified: 23 Aug 2021 12:09
URI: http://repository.essex.ac.uk/id/eprint/30945

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