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Long-run commodity prices, economic growth, and interest rates: 17th century to the present day

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journal contribution
posted on 15.08.2017 by David I. Harvey, Neil M. Kellard, Jakob B. Madsen, Mark Wohar
This paper investigates the role of permanent and transitory shocks, within the framework of common cycles and common trends, in explaining stock and oil prices. We perform a multivariate variance decomposition analysis of monthly data on the West Texas Intermediate (WTI) oil price and the S&P500. The dataset used in the study spans a long period of 150 years and therefore contains a rich history to examine both the short- and long-run comovement properties of oil and stock prices. Given that the oil and stock markets might comove both in the short- and long-run, it is of interest to see the relative impacts of transitory and permanent shocks on both variables. We find that (log) oil price and (log) S&P 500 share a common stochastic trend for our full sample of September 1859 to July 2015, but a common cycle only exists during the post-WW II period. Full and post-WW II samples have quite different common feature estimates in terms of the impact of permanent and transitory shocks as measured by the impulse responses and forecast error variance decompositions. We also find that in the short-run oil is driven mostly by cycles (transitory shocks) and stock market is mostly driven by permanent shocks. But, permanent shocks dominate in the long-run.

History

School

  • Business and Economics

Department

  • Business

Published in

World Development

Volume

89

Pages

57 - 70

Citation

HARVEY, D.I. ...et al., 2017. Long-run commodity prices, economic growth, and interest rates: 17th century to the present day. World Development, 89, pp. 57-70.

Publisher

© Elsevier

Version

AM (Accepted Manuscript)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

14/07/2016

Publication date

2017

Notes

This paper was published in the journal World Development and the definitive published version is available at https://doi.org/10.1016/j.worlddev.2016.07.012.

ISSN

0305-750X

eISSN

1873-5991

Language

en

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