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Long-run commodity prices, economic growth, and interest rates: 17th century to the present day
journal contributionposted on 2017-08-15, 12:57 authored 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.
- Business and Economics
Published inWorld Development
Pages57 - 70
CitationHARVEY, 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.
- AM (Accepted Manuscript)
Publisher statementThis 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/
NotesThis 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.