Financialization and uncertainty in the commodity market: a Bayesian approach

Absztrakt (kivonat)

We analyse two principal phenomena of the commodity market: financialization and commodity uncertainty. Our contribution to the existing literature is twofold. First, in a Bayesian factor model with time-varying parameters and stochastic volatility, we estimate a financialization index that overcomes the limitations of previous estimations and unifies the definitions of existing literature on financialization. The findings indicate strong financialization of the energy and industrial metal commodity futures between 2007 and 2013. Second, we estimate energy commodity uncertainty and its impact on the U.S. economy in a one-step approach with a modification of the dynamic factor model, allowing economic and commodity uncertainties to interact and have a direct impact on the response variables by entering the mean equation. Based on the results energy uncertainty shocks have a countercyclical impact on the U.S. economy, but their impact wears off within a year.