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Climate and Economic Policy Uncertainty in Commodities: A Wavelet Approach for Wheat Futures and Spot Prices
Maria-Glòria Barberà-Mariné, Aurelio F. Bariviera, Laura Fabregat-Aibar and Maria-Teresa Sorrosal-Forradellas
Commodities are usually used to diversify portfolios. However, their prices are affected by uncertain phenomena such as economic crises, political events, climate risk, etc. This paper examines how Climate and Economic Policy Uncertainty (measured by the CPU and GEPU indices, respectively) affect to wheat prices in the spot and future markets. By combining the wavelet transform and coherence analysis it is possible to see, graphically, the relationship between two time series and also to analyze it at different time frequencies. Although wheat spot and future prices have a similar behavior, the main results obtained in this paper show that the relationships between CPU and GEPU with future prices are stronger than with spot prices. Furthermore, futures and CPU exhibit synchronous movements, whereas futures and GEPU demonstrate antiphase behavior. However, in both cases (futures and spots) their relationship with CPU/GEPU is bounded to several time periods and some frequencies.
Keywords: Climate risk, economic policy uncertainty, spot wheat price, future wheat price, wavelet transform, coherence analysis