The Impact Of Economic Policy Uncertainty On Bulk Commodity Prices

In recent years,major events in the world,such as the US-China trade war,months of Brexit deadlock,and the longest history of US government shutdowns,have made the global economic policy uncertainty index hit new highs.Uncertainty continues to intensify leading to the superimposition of negative market sentiment and ultimately weakening economic growth.Commodities are closely related to economic activities,and the increase of policy uncertainty may affect the dynamic change of prices by affecting the fundamentals of the real economy.Commodities are important raw materials for China’s basic industries and have an important impact on economic development.Their price fluctuations have attracted much attention from the public.Therefore,this article aims to study the impact of economic policy uncertainty on bulk commodity prices.Therefore,this paper aims to study the impact of economic policy uncertainty on bulk commodity prices.In terms of theory,this paper first summarizes the main factors influencing bulk commodity prices,and then analyzes the mechanism of economic policy uncertainty affecting bulk commodity prices from direct and indirect perspectives.In general,economic policy uncertainty can affect commodity prices through supply and demand channels,financial channels and inter-market volatility spillover channels.There are some differences in the effect of different channels.At the same time,due to the different characteristics of different types of commodities,the degree and direction of the impact of economic policy uncertainty are also different.In terms of empirical research,based on Baker’s global economic policy uncertainty index,this paper estimate a structural threshold vector autoregressive(TVAR)model to study the non-linear relationship between economic policy uncertainty and the overall price of commodities,as well as the prices of energy,precious metals,agricultural products and industrial metals.Sample period is from January 1997 to December 2018.The results show that when the global economic policy uncertainty index is used as the threshold variable,the impact of economic policy uncertainty on bulk commodity prices has a significant "threshold effect".Based on the threshold test,this paper further studies the dynamic relationship between economic policy uncertainty and bulk commodity prices by using nonlinear impulse-response functions,and draws the following main conclusions.First,the increase in economic policy uncertainty will lead to a decline in the overall price of commodities,while the decrease in economic policy uncertainty will cause the overall price of commodities to rise.The impact of economic policy uncertainty on bulk commodity prices is asymmetric.Second,there is heterogeneity in the direction and degree of the impact of economic policy uncertainty on the prices of different types of commodities.In addition,this paper also makes a further comparative analysis of the impact of economic policy uncertainty between China and the United States on bulk commodity prices.The empirical results show that the economic policy uncertainty in both China and the United States will have a significant negative impact on the overall price of commodities,but the economic policy uncertainty in the United States has a longer lasting effect.At the same time,in different types of bulk commodities markets,there is a big difference between the impact of China ’s economic policy uncertainty and the US economic policy uncertainty.In summary,this paper proposes the fairish policy suggestion.First,pay attention to the impact of economic policy uncertainty of various countries on bulk commodity prices,and improve the monitoring and early warning mechanism of bulk commodity prices.Second,improve the ability to cope with the risk of fluctuations in international bulk commodity prices by means of the “Belt and Road” initiative and other buffer policies such as the reserve system.Third,maintain policy continuity and stability and improve policy transparency to reduce policy uncertainty.