The Economic Drivers of Commodity Market Volatility
66 Pages Posted: 11 Jul 2019
Date Written: July 10, 2019
We analyze the relationship between economic uncertainty and commodity market volatility. We find that commodity market volatility comoves strongly with economic and financial uncertainty, especially during recessions. Variables associated with credit risk, financial market stress, and fluctuations in business conditions bear significant predictive ability for commodity market volatility. The documented predictability is mainly observed in the period after the financialization of commodity markets (i.e. post-2004) and it peaks around the 2008-2009 global financial crisis.
Keywords: Commodities, Economic Uncertainty, Volatility, Financialization, Crisis
JEL Classification: G12, G13
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