Dating common commodity price and inflation shocks with alternative approaches

Abstract

This paper investigates the occurrence of common price shocks (co-exceedance) across different commodities. Instead of looking for a common Data Generating Process (DGP), the analysis considers two possible alternatives. The first looks for common volatility clusters trough individual GARCH models then detecting whether and when respective clusters overlap. The second alternative looks for a common Bubble Generating Process (BGP) by firstly looking for individual explosive roots and then dating them to identify the possible overlaps and early movers. Evidence emerging about these shocks’ generating processes are linked to the analogous behaviour of the Consumer Price Index (CPI) to assess to what extent inflation shocks can be associated to the observed commodity price spikes. Results show that the detection of temporary bubbles and of volatility clusters only partially agrees on the episodes of exuberance, on the early-moving commodities and on the involvement of the CPI.