Essays on Commodity Markets and Macroeconomics

Commodities play a critical role in the global economy, and their prices can have a significant impact on a wide range of industries and economic indicators. Their interaction with macroeconomic outputs is explained by different factors. First off, commodities such as oil, metals, gas, and agricultural products are the raw materials for many industries, being a fundamental input on the production chain. Second, commodities are traded globally, and their prices are often used as a benchmark for international trade. The trading of commodities helps to facilitate global trade and provides a way for countries to exchange goods and services. Third, commodity prices can have a significant impact on the global economy, as they can affect inflation and the cost of living. Stable commodity prices can help to stabilize global and domestic economies. In my dissertation, I empirically investigate the sources, features, and effects of some of the principal commodities in the world and their relationship with macroeconomic outputs.

The dissertation proposal consists of three chapters. Chapter One is joint with Christiane Baumeister. We study whether the effects of oil supply shocks on US household consumption expenditures and prices are different during good and bad economic times. Using consumer confidence measures to define good and bad regimes, we employ Local Projection methods that allow for state dependence to empirically examine whether the transmission of oil supply shocks is different depending on the consumers' sentiment about current and future economic conditions at the moment in which the shock happens. Our results show that the economic consequences due to an oil supply shock are substantially stronger during bad times, where consumer confidence is low compared to good times, where consumer confidence is high. After an unexpected increase in oil prices, there is a significant decrease in all the consumption expenditures categories and a significant increase in most price categories when this shock occurs during periods of low consumer confidence. However, these effects are small and not statistically significant when the adverse oil supply shock happens during periods with high consumer confidence. Our results are robust to different alternative models.

Chapter Two is joint with Christiane Baumeister and Franziska Ohnsorge, and it provides insights into the sources and features of aluminum and copper price fluctuations, which can offer proper guidance for tailored policy interventions. We employ a structural VAR model that incorporates informative priors to identify a set of structural shocks across the copper and aluminum markets (supply, economic activity, consumption-demand, and inventory-demand shocks) and estimate their effects on copper and aluminum prices. We find that supply and economic activity shocks explain around two-thirds of the total variation in aluminum and copper prices on impact, while the contribution of consumption- and inventory-demand shocks account together for about one-third of global metal price volatility. However, we found that at longer horizons, economic activity shocks are the single most important driver of copper and aluminum prices. We also conduct historical decompositions to study the contributions of the identified structural shocks to major global demand and supply events.

Finally, Chapter Three is a joint work with Jorge Miranda-Pinto, Andrea Pescatori, and Ervin Prifti. We study how monetary policy influences inflation dynamics by exerting its impact on a diverse array of commodity prices. At high frequencies, we show that a 10 basis points increase in US monetary policy rate reduces commodity prices between 0.5% and 2.5%, after 18 to 24 business days. Beyond the dollar appreciation channel, the effects are larger for highly storable and industrial commodities, consistent with the cost of carry and the expected demand channel. We then study the quantitative importance of the commodity-price channel of monetary policy on domestic and international inflation at longer horizons (6-36 months). The results indicate that the response of commodity prices--oil, base metals, and food prices--to monetary policy accounts for 47% of the total effect of US monetary policy on US headline inflation, and 57% of the effect of US monetary policy on other countries' headline inflation. The commodity price channel on core inflation is smaller and mainly driven by base metal prices.