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Does the price of strategic commodities respond to U.S. partisan conflict?

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  • Jiang, Yong
  • Ren, Yi-Shuai
  • Ma, Chao-Qun
  • Liu, Jiang-Long
  • Sharp, Basil

Abstract

A noteworthy feature of U.S. politics in recent years is serious partisan conflict, which has led to intensifying polarization and exacerbating high policy uncertainty. The US is a significant player in oil and gold markets. Oil and gold also form the basis of important strategic reserves in the US. We investigate whether U.S. partisan conflict affects the returns and price volatility of oil and gold using a parametric test of Granger causality in quantiles. The empirical results suggest that U.S. partisan conflict has an effect on the returns of oil and gold, and the effects are concentrated at the tail of the conditional distribution of returns. More specifically, the partisan conflict mainly affects oil returns when the crude oil market is in a bearish state (lower quantiles). By contrast, partisan conflict matters for gold returns only when the gold market is in a bullish scenario (higher quantiles). In addition, for the volatility of oil and gold, the predictability of partisan conflict index virtually covers the entire distribution of volatility.

Suggested Citation

  • Jiang, Yong & Ren, Yi-Shuai & Ma, Chao-Qun & Liu, Jiang-Long & Sharp, Basil, 2020. "Does the price of strategic commodities respond to U.S. partisan conflict?," Resources Policy, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:jrpoli:v:66:y:2020:i:c:s0301420719307299
    DOI: 10.1016/j.resourpol.2020.101617
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    More about this item

    Keywords

    U.S. partisan conflict; Granger causality in quantiles; Oil prices; Gold prices;
    All these keywords.

    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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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