Abstract

This article uses the global vector autoregression (GVAR) approach to investigate commodity price shocks and monetary shocks. The study's focus is on commodity price shocks that affect both the total price level and variables related to monetary policy, such as short-term interest rates. In this paper, we address this issue using a framework comprises 26 country/region-specific models, estimated over the period 1979Q2-2016Q4, with the Euro area considered a single economy. We contribute to the energy-macroeconomics literature by using exogenous variations in energy and non-fuel commodity prices events over time and its effects on different regions to causally identify the effects of energy and non-fuel commodity prices shocks (directly and total) on key macro-economic variables such as growth, inflation, and significant macroeconomic variables. It is seen that there are significant heterogeneities in the reactions of different countries against energy prices shocks. Australia, New Zealand, Switzerland, the United Kingdom face a short-term drop-in economic activity in response to the UK oil price shock, while it has a growth-enhancing effect for other countries (including Turkey, united states and the Eurozone). The results show that commodity price shocks such as oil and metal have a huge impact on the real economy, with metal prices having a greater quantitative impact on output compared to oil prices. Given these findings, macro-economic policies should take into account the changes and effects of energy and non-fuel commodity prices.

Keywords: Oil and non-fuel commodity prices shocks, Global macro-econometric modelling, International business cycle

JEL Classification: C32, F44, O13, Q54