Energy and Metal Price Uncertainties and the Global Economy

A novel measure of two classes of monthly commodity price uncertainty is constructed by applying mixed-frequency state-space modelling to price forecasts of six energy and fourteen metal commodities. Energy price uncertainty shocks are contractionary for the world economy, while metal price uncertainty shocks are not. Both metal and energy prices decrease following an associated price uncertainty shock, with counterfactual analysis revealing that energy price uncertainty has a mainly direct impact on energy returns while the impact of metal price uncertainty on metal returns is mediated through global financial markets. Global economic activity is a significant driver of both commodity uncertainties, while global financial uncertainty is only important for metal price uncertainty. Our results highlight the differences between metal and energy price uncertainties, both in terms of the driving forces behind them, as well as their economic impact