The impact of the Euro area macroeconomy on energy and non-energy global commodity prices

Papież, Monika and Śmiech, Sławomir and Dąbrowski, Marek A. (2014): The impact of the Euro area macroeconomy on energy and non-energy global commodity prices.

Abstract

The aim of the paper is the analysis of the links between the real and financial processes in the euro area and energy and non-energy commodity prices. Monthly data spanning from 1997:1 to 2013:12 and the structural VAR model are used to analyse the relations between global commodity prices and the euro area economy. The analysis is performed for three sub-periods in order to capture potential changes in these relations in time. The main finding of the study reveals that commodity prices in the euro area do not respond to impulses from production (the economic activity), while commodity prices strongly react to impulses from financial processes, that is, the interest rates in the euro area and the dollar exchange rate to the euro (especially in the period before the global financial crisis). The study also indicates tightening the relations between energy and non-energy commodity prices.

• Item Type: MPRA Paper
• Language: English
• Keywords: commodity prices, real economy, financial market, SVAR
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy

References

Akram, Q. F. (2009). Commodity prices, interest rates and the dollar. Energy Economics, 31(6), 838-851.

Alquist, R., Kilian, L., & Vigfusson, R. J. (2011). Forecasting the price of oil. In: Elliott, G., & Timmermann, A. (Eds.), The Handbook of Economic Forecasting, 2nd ed. North-Holland.

Arora, V., & Tanner, M. (2013). Do oil prices respond to real interest rates?. Energy Economics, 36, 546-555.

Blanchard, O. J., & Quah, D. (1989). The dynamic effects of aggregate demand and supply disturbances. American Economic Review, 79(4), 655–673.

Breitung, J., Bruggemann, R., & Lutkepohl, H. (2004). Structural vector autoregressive modeling and impulse response. In: Lutkepohl, Helmut, Krätzig, Markus (Eds.), Book Chapter in “Applied Time Series Econometrics”. Cambridge University Press.

Davidson, P. (2008). Crude Oil Prices:" Market Fundamentals" or Speculation?. Challenge, 51(4), 110-118.

Demirbas, A. (2011). Competitive liquid biofuels from biomass. Applied Energy, 88(1), 17-28.

Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366a), 427-431.

Frankel, J. A. (2008). The effect of monetary policy on real commodity prices. In Campbell, J.Y. (Ed.), Asset Prices and Monetary Policy (pp. 291-333). NBER, University of Chicago Press, Chicago.

Frankel, J.A., & Rose, A.K. (2010). Determinants of Agricultural and Mineral Commodity Prices. In Fry, R., Jones, C., & Kent, C. (Eds.), Inflation in an Era of Relative Price Shocks. Reserve Bank of Australia, Sydney.

Hamilton, J.D. (2009). Causes and consequences of the oil shock of 2007–2008. Brookings Paperson Economic Activity, pp. 215–261.

Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration—with applications to the demand for money. Oxford Bulletin of Economics and statistics, 52(2), 169-210.

Kaufmann, R. K. (2011). The role of market fundamentals and speculation in recent price changes for crude oil. Energy Policy, 39(1), 105-115.

Kilian, L. (2008). Exogenous oil supply shocks: how big are they and how much do they matter for the US economy?. The Review of Economics and Statistics, 90(2), 216-240.

Kilian, L. (2009a). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. The American Economic Review, 99, 1053-1069.

Kilian, L. (2009b). Comment on ‘‘Causes and consequences of the oil shock of 2007-08’’ by James D. Hamilton, Brookings Papers on Economic Activity, pp. 267–278.

Kilian, L. (2010). Oil price shocks, monetary policy and stagflation. In: Fry, R., Jones, C., Kent, C. (Eds.), Inflation in an Era of Relative Price Shocks. Reserve Bank of Australia, Sydney.

Krugman, P. (2008). Commodity Prices. The New York Times, March 19.

Lescaroux, F. (2009). On the excess co-movement of commodity prices—A note about the role of fundamental factors in short-run dynamics. Energy Policy, 37(10), 3906-3913.

Parsons, J. E. (2010). Black gold and fool's gold: speculation in the oil futures market. Economia, 10(2), 81-116.

Pindyck, R.S., & Rotemberg, J.J. (1990). The excess co-movement of commodity prices. The Economic Journal, 100, 1173–1187.

Sari, R., Hammoudeh, S., & Soytas, U. (2010). Dynamics of oil price, precious metal prices, and exchange rate. Energy Economics, 32(2), 351-362.

Sims, C.A. (1980). Macroeconomics and reality. Econometrica 48, 1–48.

Svensson, L.E.O. (2008). The effect of monetary policy on real commodity prices: comment. In: Campbell, J.Y. (Ed.), Asset Prices and Monetary Policy. NBER, University of Chicago, Chicago.

Śmiech, S., & Papież, M. (2013). Fossil fuel prices, exchange rate, and stock market: A dynamic causality analysis on the European market. Economics Letters, 118(1), 199-202.

Śmiech, S., Papież, M., & Dąbrowski, M.A. (2014). Energy and non-energy commodity prices and the Eurozone macroeconomy: a SVAR approach. In: Papież, M., Śmiech, S. (Eds.), Proceedings of the 8th Professor Aleksander Zelias International Conference on Modelling and Forecasting of Socio-Economic Phenomena. Cracow: Foundation of the Cracow University of Economics, 165-174.