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The impact of macroeconomic uncertainty on international commodity prices: Empirical analysis based on TVAR model

Xiaofen Tan (School of Finance, Central University of Finance and Economics, Beijing, China)
Yongjiao Ma (School of Finance, Central University of Finance and Economics, Beijing, China)

China Finance Review International

ISSN: 2044-1398

Article publication date: 15 May 2017

Abstract

Purpose

The purpose of this paper is to empirically analyze the impact of macroeconomic uncertainty on a large sample of 19 commodity markets.

Design/methodology/approach

The authors rely on Jurado et al.’s (2015) measure of macroeconomic uncertainty based on a wide range of monthly macroeconomic and financial indicators and estimate a threshold VAR model to assess whether the impact of macroeconomic uncertainty on commodity prices differs under the high- or low-uncertainty state.

Findings

The findings show that positive macroeconomic uncertainty shocks affect commodity prices returns negatively on average and the impact of macroeconomic uncertainty is generally higher in high-uncertainty states compared with low-uncertainty states. Besides, although the safe-haven role of precious metals is confirmed, energy and industrial markets are more sensitive to short-run and long-run macroeconomic uncertainty, respectively.

Research limitations/implications

The findings in this study suggest that commodity prices reflect not only the level of economic fundamental but also the volatility of economic fundamental.

Originality/value

This study empirically analyzes and verifies the influence of macroeconomic uncertainty not only on oil prices but also on four groups of 19 raw materials. As for the methodological issues, the authors rely on a structural threshold vector autoregressive specification for modeling commodity price returns to account for potentially different effects depending on the macroeconomic uncertainty states.

Keywords

Acknowledgements

The authors acknowledge General Program of National Social Science Fund (12BGJ042), “The Way Forward Arrangement and Risk Control System in Capital Account Openness in China”, Research Projects in Important Issues of Philosophy and Social Sciences in Ministry of Education (14JZD016), Cultivated Research Projects in Important Issues(Fundamental and Theoretical Type, Project Number 14ZZD004), Specific Funds for the Fundamental Scientific Research of Central Universities, Youth Research Innovation Team Support Program and Postgraduate Research Innovation Fund in Central University of Finance and Economics.

Citation

Tan, X. and Ma, Y. (2017), "The impact of macroeconomic uncertainty on international commodity prices: Empirical analysis based on TVAR model", China Finance Review International, Vol. 7 No. 2, pp. 163-184. https://doi.org/10.1108/CFRI-06-2016-0066

Publisher

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Emerald Publishing Limited

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