Macroeconomic uncertainty: does it matter for commodity prices?

Using a new uncertainty index from Baker <italic>et al</italic>. (2013), we evaluate the time-varying correlation between macroeconomic uncertainty and commodity prices. Estimation results from a multivariate DCC-GARCH model reveal that increased volatility in uncertainty leads to increased price and volatility in commodity markets, while increased volatility in commodity markets enhances policy uncertainty. Our results also indicate that the dynamic linkage between uncertainty and commodity prices varies over time substantially. It becomes more correlated since the later part of 2003, and behaves largely different before and after the 2008 financial crisis.