Commodity Price Uncertainty Comovement : Does it Matter for Global Economic Growth?

We estimate a global commodity uncertainty factor by capturing comovement in volatilities of major commodity markets through a group-specific Dynamic Factor Model. Then, by computing impulse response functions using a Structural VAR model, we find that an increase in the common commodity price uncertainty results in a substantial and persistent drop in investment and trade, for both emerging and advanced economies. We show that a global commodity uncertainty shock is more detrimental for short- and long-term economic growth than usual financial and economic policy uncertainty shocks. Last, our methodology is an innovative way to disentangle "good" and "bad" macroeconomic effects of oil price uncertainty: when an oil price uncertainty shock is common to all commodities, then the macroeconomic effect is likely to be negative, similar to a global demand shock. However, when the uncertainty shock is only specific to the oil market, the short-run effect tends to be positive