The impact of macroeconomic and oil shocks on India’s non-ferrous metal prices: A structural-VAR approach

Abstract

This paper compares the value shocks from the real interest rates, real exchange rates, real crude prices, and other key macroeconomic variables on the metal prices. The structural VAR models are estimated on monthly data over the period 2005m12–2019m12 to determine the asymmetric effect of the macroeconomic shocks and determine whether commodity prices display overshooting behavior in response to these shocks. The impulse response and the forecast error variance decomposition function analyze the short-term impacts on the Indian non-ferrous metal prices. The results indicate that the metals index, and crude oil have a significant positive impact on the prices of metals, while the real interest rate negatively affects India’s metal prices. The impact of the real exchange rate and own shocks on real metal prices is found to be insignificant. Metal prices tend to display an overshooting behavior in response to changes in the real interest rate. Besides, the forecast error variance decomposition reveals the incremental contribution of crude oil prices in explaining the behaviour of metal prices.