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4.8 Impact of supply shocks on oil and base metal price growth
COMMODITY MARKETS CHAPTER 4 235
FIGURE 4.8 Impact of supply shocks on oil and base metal price growth
Supply shocks have lasting impacts on growth of oil prices and most metal prices, except for aluminum. For all metals, the short-run impact of supply shocks is smaller than that of demand shocks and considerably less than for oil prices. For oil prices, the effects of supply and demand shocks are more symmetric.
A. Impact of a supply decline on oil price growth B. Impact of a supply decline on aluminum and
copper price growth
C. Impact of a supply decline on nickel and zinc price growth D. Impact of a supply decline on tin and lead price growth
Sources: World Bank Commodity Markets (Pink Sheet) database; World Bank. Note: Figures show impulse response of log price of six base metals and oil to a positive supply shock equivalent to a 1 percent decline in the respective metal's production growth, based on a structural vector autoregression model in which sign restrictions identify shocks. A supply shock is defined to reduce global industrial production and global metal or oil production but raise global metal or oil prices. Solid lines indicate median impulse responses; dashed lines indicate 16th to 84th credible intervals.
2012) depressed metal prices to a lesser extent, as would be expected from smaller demand shocks. Price increases after a slowdown also tended to be more gradual than after a recession; prices did not fully recover for at least a year.
Robustness
Similar SVAR exercises, using alternative proxies of global economic activity, indicate that the estimates of the model are qualitatively robust to the choice of proxy for global economic activity (annex 4C). These alternatives involved a commodity-specific demand-weighted average of industrial production in the world's 30 largest economies, J.P. Morgan's Global Manufacturing and Composite Purchasing Manager Indexes, and the Global Economic Conditions indicator of Baumeister, Korobilis, and Lee (2020).
