Global Uncertainty, Macroeconomic Activity and Commodity Price

Shen, Yifan and Shi, Xunpeng and Zeng, Ting (2017): Global Uncertainty, Macroeconomic Activity and Commodity Price.

Abstract

We extend Jurado et al. (2015)’s forecast-error-based uncertainty measure to the international context, and construct a new measure of global uncertainty. We examine dynamic causal effects among global uncertainty and other global macroeconomic variables, and provide two important applications of our global uncertainty measure by linking it to the price formation mechanism of oil and international uncertainty spillover effects. We show that the well-documented relation between uncertainty and real activities is not only a regional issue, but also a global phenomenon. Global uncertainty also plays a key role in determining commodity prices, as well as driving business cycle fluctuations in a certain economy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Global Uncertainty, International Economics, Commodity Price, Oil Price
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F44 - International Business Cycles; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products

References

Aloui, R., R. Gupta, and S. M. Miller (2016). Uncertainty and crude oil returns. Energy Economics 55, 92–100.

Bachmann, R., S. Elstner, and E. R. Sims (2013). Uncertainty and Economic Activity: Evidence from Business Survey Data. American Economic Journal: Macroeconomics 5 (2), 217–249.

Bai, J. and S. Ng (2003, dec). Determining the Number of Factors in Approximate Factor Models. Econometrica 70 (1), 191–221.

Baker, S. R., N. Bloom, and S. J. Davis (2016, nov). Measuring Economic Policy Uncertainty*. The Quarterly Journal of Economics 131 (4), 1593–1636.

Barsky, R. B. and L. Kilian (2004, dec). Oil and the Macroeconomy Since the 1970s. Journal of Economic Perspectives 18 (4), 115–134.

Baumeister, C. and G. Peersman (2012, jun). The Role of Time-Varying Price Elasticities in Accounting for Volatility Changes in the Crude Oil Market. Journal of Applied Econometrics 28(7), 1087–1109.

Berger, T., S. Grabert, and B. Kempa (2015, dec). Global and Country-Speci c Output Growth Uncertainty and Macroeconomic Performance. Oxford Bulletin of Economics and Statistics 78(5), 694–716.

Berger, T., S. Grabert, and B. Kempa (2017). Global macroeconomic uncertainty. Journal of Macroeconomics 53, 42–56.

Bernanke, B. S. (1983). Irreversibility, Uncertainty, and Cyclical Investment. The Quarterly Journal of Economics 98 (1), 85–106.

Bloom, N. (2009). The impact of uncertainty shocks. Econometrica: Journal of the Econometric Society 77(3), 623–685.

Bloom, N. (2014). Fluctuations in Uncertainty. Journal of Economic Perspectives 28 (2), 153– 176.

Bloom, N., S. Bond, and J. van Reenen (2007). Uncertainty and Investment Dynamics. The Review of Economic Studies 74 (2), 391–415.

Caggiano, G., E. Castelnuovo, and N. Groshenny (2014). Uncertainty shocks and unemployment dynamics in U.S. recessions. Journal of Monetary Economics 67, 78–92.

Canova, F. (2005, mar). The transmission of US shocks to Latin America. Journal of Applied Econometrics 20 (2), 229–251.

Carriero, A., T. E. Clark, and M. Marcellino (2017, jun). Measuring Uncertainty and Its Impact on the Economy. The Review of Economics and Statistics.

Cesa-Bianchi, A., M. H. Pesaran, and A. Rebucci (2014). Uncertainty and Economic Activity: A Global Perspective. Working Paper.

Elder, J. and A. Serletis (2010). Oil Price Uncertainty. Journal of Money, Credit and Banking 42(6), 1137–1159.

Favero, C. A., M. Hashem Pesaran, and S. Sharma (2018, oct). A duration model of irreversible oil investment: Theory and empirical evidence. Journal of Applied Econometrics 9(S1), S95–S112.

Gilchrist, S., J. W. Sim, and E. Zakrajsek (2014). Uncertainty, Financial Frictions, and Investment Dynamics. NBER Working Papers (no. 20038).

Hamilton, J. D. (1983). Oil and the macroeconomy since World War II. The Journal of Political Economy 91(2), 228–248.

Hamilton, J. D. (2003). What is an oil shock? Journal of Econometrics 113 (2), 363–398. Hamilton, J. D. (2009). Causes and Consequences of the Oil Shock of 2007-08,. Brookings Papers on Economic Activity 2009, 262–283.

Herrera, A. M. and E. Pesavento (2009). Oil Price Shocks, Systematic Monetary Policy, And The Great Moderation. Macroeconomic Dynamics 13 (1), 107–137.

Huang, Z., C. Tong, H. Qiu, and Y. Shen (2018). The spillover of macroeconomic uncertainty between the U.S. and China. Economics Letters 171, 123–127.

Jurado, K., S. C. Ludvigson, and S. Ng (2015). Measuring Uncertainty. American Economic Review 105(3), 1177–1216.

Kellogg, R. (2014). The Effect of Uncertainty on Investment: Evidence from Texas Oil Drilling. The American Economic Review 104 (6), 1698–1734.

Kilian, L. (2008). Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy? 90(May), 216–240.

Kilian, L. (2009). Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market. The American Economic Review.

Kilian, L. and D. P. Murphy (2013, apr). The Role of Inventories and Speculative Trading in the Global Market for Crude Oil. Journal of Applied Econometrics 29 (3), 454–478.

Kose, M. A., C. Otrok, and E. Prasad (2012, may). Global Business Cycles: Convergence or Decoupling? International Economic Review 53 (2), 511–538.

Kose, M. A., C. Otrok, and C. H. Whiteman (2003). International business cycles: World, region, and country-specific c factors. American Economic Review 93 (4), 1216–1239.

Kose, M. A., C. Otrok, and C. H. Whiteman (2008, may). Understanding the evolution of world business cycles. Journal of International Economics 75 (1), 110–130.

Leduc, S. and Z. Liu (2016). Uncertainty shocks are aggregate demand shocks. Journal of Monetary Economics 82, 20–35.

Lippi, F. and A. Nobili (2012, jun). Oil and the macroeconomy: a quantitative structural analysis. Journal of the European Economic Association 10 (5), 1059–1083.

Litzenberger, R. H. and N. Rabinowitz (1995). Backwardation in Oil Futures Markets: Theory and Empirical Evidence. The Journal of Finance 50 (5), 1517–1545.

Ludvigson, S. C., S. Ma, and S. Ng (2016). Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response? manuscript, New York University.

Montoro, C. (2012). Oil shocks and optimal monetary policy. Macroeconomic Dynamics 16 (2), 240–277.

Mumtaz, H. (2018). Does uncertainty affect real activity? Evidence from state-level data. Economics Letters 167, 127–130.

Mumtaz, H. and P. Surico (2009, feb). The Transmission of International Shocks: A Factor-Augmented VAR Approach. Journal of Money, Credit and Banking 41, 71–100.

Mumtaz, H. and K. Theodoridis (2017). Common and country-specific economic uncertainty. Journal of International Economics 105, 205–216.

Nakamura, E. and J. Steinsson (2014). Fiscal Stimulus in a Monetary Union: Evidence from US Regions. American Economic Review 104 (3), 753–792.

Ozturk, E. O. and X. S. Sheng (2018). Measuring global and country-specific uncertainty. Journal of International Money and Finance 88, 276–295.

Peersman, G. and I. Van Robays (2009). Oil and the Euro Area Economy. Economic Policy 24(60), 603–651.

Pindyck, R. S. (1991). Irreversibility, Uncertainty, and Investment. Journal of Economic Lit- erature 29(3), 1110–1148.

Shi, X. and S. Sun (2017). Energy price, regulatory price distortion and economic growth: A case study of China. Energy Economics 63, 261–271.

Singleton, K. J. (2013, oct). Investor Flows and the 2008 Boom/Bust in Oil Prices. Management Science 60(2), 300–318.

Stock, J. H. and M. W. Watson (2005, sep). Understanding Changes In International Business Cycle Dynamics. Journal of the European Economic Association 3 (5), 968–1006.

Van Robays, I. (2016, jan). Macroeconomic Uncertainty and Oil Price Volatility. Oxford Bulletin of Economics and Statistics 78 (5), 671–693.