The time-varying effects of trade policy uncertainty and geopolitical risks shocks on the commodity market prices: Evidence from the TVP-VAR-SV approach

The paper focuses on investigating the time-varying influence of geopolitical risks (GPR) and trade policy uncertainty (TPU) on commodity prices by using time-varying parameter vector autoregressive model with stochastic volatility (TVP-VAR-SV). We find that (i) TPU and GPR have significant time-varying effects on the aggregate (classified) commodity market, and the former is a short-term effect before 2006, and it becomes a medium-to-long-term effect after 2006, while the latter is mainly a short-term effect; (ii) TPU shock has a significant positive and time-varying impact on GPR, and the relatively long-term impact is more obvious before 2017, while the short-term impact will dominate after 2017. Additionally, the GPR shock has a short-term negative impact on TPU, and a medium- and long-term positive impact except for the period from 2002 to 2006; (iii) the impact of geopolitical threats (GPT) and geopolitical acts (GPA) on aggregate commodity market have positive and negative alternating shock effects with time variability and a significant short periods impact; (iv) there is a certain degree of heterogeneity in the response of different commodity prices, and the response of individual commodities is related to specific external shocks, such as the COVID-19 pandemic.