Commodity price shocks and the business cycle: Structural evidence for the U.S.

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper develops a 9-dimensional SVAR to investigate the sources of the U.S. business cycle. We extend the standard set of identified shocks to include unexpected changes in commodity prices. Our main result is that commodity price shocks are a very important driving force of macroeconomic fluctuations, second only to investment-specific technology shocks. In particular, we find that commodity price shocks explain a large share of cyclical movements in inflation. Neutral technology shocks and monetary policy shocks seem less relevant at business cycle frequencies. The impulse response dynamics provide support for medium-scale DSGE models, but not for strong price rigidities. Terms of use: Documents inJEL Classification: C32, E32, E52, Q43

Monetary Policy Surprises, Positions of Traders, and Changes in Commodity Futures Prices

“…This is consistent with some existing studies in the literature (Anzuini, Lombardi and Pagano, 2012;Gubler and Hertweck, 2013) that provide evidence of an 19 Glick and Leduc (2012), Stoll and Whaley (2010) and Buyuksahin and Robe (2013) note the Goldman Sachs commodity index is heavily weighted in favor of commodities in the energy group as these account for nearly 70% of the index. Unsurprisingly, the highly significant and large response of the Goldman Sachs index is similar to that of the energy commodities.…”

“…On the one hand, Frankel (2008) studies the effect of interest rate changes on individual commodity prices but does not distinguish between the expected and surprise components of such changes. On the other hand, several methodological differences distinguish our study from the interesting studies of Anzuini, Lombardi and Pagano (2012) and Gubler and Hertweck (2013). 6 While the findings from recent studies that suggest a high-frequency response of energy prices to conventional and unconventional monetary policy are interesting and useful in many respects (Rosa 2012;Glick and Leduc, 2012;Basistha and Kurov, 2013), our paper examines a broader cross-section of commodities and presents evidence of a longer lived response of commodity prices to monetary policy which can be more informative from a policymaking and trading perspective.…”

“…Anzuini, Lombardi and Pagano (2012) explore the effect of monetary policy on commodity prices and present empirical evidence suggesting that expansionary monetary policy leads to a modest increase in commodity prices. Gubler and Hertweck (2013) provide empirical evidence that an expansionary monetary 5 policy shock results in a persistent increase in commodity prices. 5 A parallel and closely related strand of the literature investigates the effect of announcements, defined more broadly, on commodity prices with somewhat mixed results (Frankel and Hardouvelis, 1985;Kilian and Vega, 2011).…”

New insights into the US stock market reactions to energy price shocks

“…The consensus is that crude oil prices play a significant role in contemporary economic activities (e.g., Huang et al, 1996;Huntington, 1998;Hamilton and Herrera, 2004;Kilian, 2008;Kilian and Park 2009;Oladosu 2009, Boldanov et al, 2016Broadstock et al, 2016;Guo et al, 2016;Pan et al, 2016;Zhang, 2017). In the same vein, using a structural VAR model incorporating unexpected changes of commodity prices, Gubler and Hertweck (2013) investigate the importance of commodity prices in the US economy. Their findings suggest that commodity price shocks are important drivers of macroeconomic fluctuations in the US.…”

Commodity Prices and Related Equity Prices

“…However, as Chen (2014) focuses only on oil price predictability, it is unclear whether the strong dynamic link between oil 1 Such sharp price increases and variations invoke concerns about their possibly devastating effects on a range of economic activities. For instance, see Gubler and Hertweck (2013), Chen et al (2014), Hamilton (2009), Cologni and Manera (2009), Lardic and Mignon (2008) and Ordonez et al (2011). 2 See Chinn and Coibion (2014), Chen et al (2010Chen et al ( , 2012, Gospodinov and Ng (2013), West and Wong (2014) and the references therein.…”