The effects of uncertainty measures on commodity prices from a time-varying perspective

Abstract

Based on a time-varying parameter vector autoregression (TVP-VAR) model, this paper analyses the time-varying relationships between commodity prices and uncertainty measures (namely, economic policy uncertainty (EPU), macroeconomic uncertainty (MU), equity market uncertainty (EMU), and stock market volatility (VXO)). We confirm that the effects of uncertainty shocks on commodity prices are time-varying, except for MU. In particular, compared with other major uncertain events, the 2008 financial crisis had a greater impact on commodity prices. Finally, we also find that the time-varying impact is greater in agricultural commodity prices compared to metals and energy commodities prices. These findings have important reference meanings for policymakers and investors.