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Commodity Price Uncertainty as a Leading Indicator of Economic Activity

Author

Listed:
  • Athanasios Triantafyllou

    (Essex Business School, University of Essex, UK)

  • Dimitrios Bakas

    (Department of Economics, Nottingham Trent University, UK; Rimini Centre for Economic Analysis)

  • Marilou Ioakimidis

    (University of Peloponnese, Greece; Department of Economics, National and Kapodistrian University of Athens, Greece)

Abstract

In this paper we examine the impact of commodity price uncertainty on US economic activity. Our empirical analysis indicates that uncertainty in agricultural, metals and energy markets depresses US economic activity and acts as an early warning signal for US recessions with a forecasting horizon ranging from one to twelve months. The results reveal that uncertainty shocks in agricultural and metals markets are more significant for the US macroeconomy when compared to 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 response to energy uncertainty shocks is significantly reduced due to either systematic policy reactions or random shocks in monetary policy.

Suggested Citation

  • Athanasios Triantafyllou & Dimitrios Bakas & Marilou Ioakimidis, 2019. "Commodity Price Uncertainty as a Leading Indicator of Economic Activity," Working Paper series 19-03, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:19-03
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    More about this item

    Keywords

    Volatility; Commodity Prices; Economic Recession; Economic Activity;
    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
    • 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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