Global Liquidity and Commodity Prices Uncertainty Using Sfavec Model

This paper provides robust evidence of global liquidity on global commodity prices in some major developing and developed economies. Specifically, we investigate the global liquidity and global commodity prices for six majors developing and emerging economies; Brazil, Russia, India, China, South Africa and Mexico (BRICSM) and four majors developed economies; Canada, the European Union (EU), Japan and the US (G4). We estimate a structural factor-augmented vector error correction model which allows for a partition among short-run and long-run time-varying. Our key finding is those positive innovations in BRICSM M2 that linked with a positive effect on the commodity prices that is more than the impact of unexpected increases in G4 M2 on commodity prices. The commodity prices uncertainty attributed to commodity prices volatility in developed and developing countries, with the uncertainty effect being more significant and persistent in emerging economies