EXPLORING THE RELATIONSHIPS BETWEEN RAW MATERIAL PRICES AND THE BALTIC DRY INDEX AMIDST COVID-19

Abstract

This paper investigates the impact of changes in raw material commodity prices on the Baltic Dry Index (BDI). The BDI is a leading indicator of economic activity that reflects changes in supply and demand for imported raw materials used in manufacturing. We aim to examine whether changes in raw materials affect the value of the BDI and to determine the individual impacts of different raw materials on the BDI. Using the generalized method of moments and 2SLS estimators to analyze the data, we find that different raw materials have different impacts on the value of the BDI, suggesting that the value of raw materials that compose the BDI cannot forecast its movement based on individual movements. This study contributes to the literature by revealing the limitations of prediction models that rely on individual raw material movements and highlights the unique impact of key raw materials on the BDI.