Co-movement of commodity price indexes and energy price index: a wavelet coherence approach

Dervis Kirikkaleli,Hasan Güngör

doi:10.1186/s40854-021-00230-8

Abstract

This research sheds light on the causal link between commodity price indexes, i.e., the Agricultural Raw Materials Price Index, Industry Input Price Index, Metal Price Index, and Energy Price Index, in the global market, using wavelet coherence, Toda–Yamamoto causality, and gradual shift causality tests over the period 1992M1 to 2019M12. Findings from the wavelet power spectrum and partial wavelet coherence reveal that: (1) there was significant volatility in the Agricultural Raw Materials Price Index, Industry Input Price Index, Metal Price Index, and Energy Price Index between 2004 and 2014 at different frequencies; and (2) commodity price indexes significantly caused the energy price index at different time periods and frequencies. It is noteworthy that the outcomes of the Toda–Yamamoto causality and gradual-shift causality tests are in line with the results of wavelet coherence.

Highlights

Commodities play a key role in global trade, connecting nations around the world
This study investigates the causal link between the commodity price indexes, namely Agricultural Raw Materials Price Index, Industry Input Price Index, Metal Price Index, and Energy Price Index for the global market
In addition to the wavelet coherence approach, the Toda and Yamamoto causality and gradual shift causality approaches are applied to capture the causal linkage between commodity price indexes, i.e., the Agricultural Raw Materials Price Index, Industry Input Price Index, Metal Price Index, and Energy Price Index, in the global market

Summary

Introduction

Commodities play a key role in global trade, connecting nations around the world. The trade of an item is affected by numerous factors, which have been studied from various perspectives. Kang et al (2017) studied the dynamics of return and volatility spillover indexes to reveal the intensity and direction of transmission during the 2006–2008 global financial and European sovereign debt crises, focusing on crude oil, precious metals, and agricultural commodity futures markets. Their findings showed that during the crises, the correlation between the commodities’ futures market returns increased sharply.

Methodology

Conclusion