Volatility in Commodity Prices. Not all Regimes are Alike

Commodity prices are extremely volatile, and volatility itself fluctuates overtime. This volatility has consequences for both the global economy and commoditymarkets themselves. Using data from 1959 to 2021, we estimate a3-state Markov-switching model to identify expansions and contractions in oiland copper price volatility. We found that oil prices are more volatile thancopper prices in all states. We found a transition from a low to a medium varianceregime for the oil price, in 1979. In addition, we identify infrequent andshort-lived episodes of unusually high oil price volatility, mostly related to oilsupply disruptions and demand shifts. For copper, there is no transition acrossregimes, and episodes of high volatility are not synchronized with the periodsof high volatility in oil prices