The Macroeconomic Fragility of Critical Mineral Markets

Kang, Wilson and Smyth, Russell and Vespignani, joaquin vespignani (2025): The Macroeconomic Fragility of Critical Mineral Markets.

Abstract

This paper applies the macroeconomic fragility framework for studying the effects of supply chain disruptions, proposed by Acemoglu and Tahbaz-Salehi (2024), to critical minerals markets. A key prediction of the macroeconomic fragility framework is that equilibrium supply chains are inherently fragile, meaning that even small shocks can trigger cascading supply chain breakdowns that can significantly magnify the discontinuous response of aggregate supply to shocks, leading to higher volatility and prices of critical minerals. We highlight the important role that the non-technical risk premium plays in magnifying global supply chain shocks in the specific case of critical minerals. Using a mixed-frequency Structural VAR model with agnostic sign restrictions and newly constructed data on non-technical risk premiums, we estimate the impact of supply chain disruption, the non-technical risk premium and their interaction on the prices and volatility of six critical minerals. We find that global supply chain disruptions, magnified by non-technical risk premiums, significantly increase critical mineral prices and price volatility for all six critical minerals studied, indicating inefficient outcomes which we interpret as macroeconomic fragility in critical minerals markets. We also show that stockpiling has the potential to reduce macroeconomic fragility in critical mineral markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: global supply chain disruption, critical minerals, non-technical risk premiums, macroeconomic fragility
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General; E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q02 - Commodity Markets

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