Commodities Prices Volatility, Expected Inflation and GDP Levels: An Application for a Net-exporting Economy

Abstract

This work applies time series methods, such as VAR, ARMA-GARCH and Cointegration/VEC, in order to test for short and long term relationships between commodities prices changes and relevant macroeconomic variables in Brazil, from January/2005 to May/2013. The main evidences have shown the existence of short term effects of commodities prices shocks on the expected and current consumer inflation, as well as on GDP and exchange rate levels; in turn, the long term relationships have been verified through changes in commodities prices volatility: in long term, an increase of the latter means a context of higher expected inflation and lower GDP levels, thereby showing that economic authorities have scientific reasons to concern with abrupt fluctuations in commodities markets. In this sense, volatility in commodity markets is not neutral.