Abstract:
Commodity and asset prices have a well-documented effect on economic growth, manifested
through various channels. At the same time, the business cycle influences the commodity and
asset prices. Whereas empirical evidence on the effect of commodity and asset prices on the
long-run economic growth is ambiguous, most of the previous researches highlight a positive
correlation in the short-run. The aim of this paper is to disentangle the short- and long-run comovements
between U.S. historical business cycles and commodity and asset prices, over the
period 1859-2013. For this purpose we use a time-frequency approach and we test the
historical influence of oil, gold, housing and stock prices, over the output growth. Different
from other studies, we control for the effect of other prices and monetary conditions, using
the wavelet partial coherency. In line with the previous works, we discover that comovements
between economic growth and commodity and assets prices manifest especially
in the short-run. We also find that stock returns and housing prices have a more powerful
effect on the U.S. economic growth rate than the oil and gold prices. The long-run comovements
are documented especially around the World War II. Finally, when controlling
for the influence of the interest rate, inflation and other commodity and asset prices, comovements
become weaker in the short-run. In general the oil and housing prices lead the
GDP growth, the U.S. output lead the gold prices, while there is no clear causality direction
between business cycle and stock prices.
