On the long-term common movement of resource and commodity prices.A methodological proposal

This paper investigates the long-term common movement of resource and commodity prices. Beyond its unquestionable policy relevance, detecting such common behaviour is empirically challenging. A novel methodological approach is proposed. It is based on a common latent factor hypothesis. This hypothesis is empirically investigated by specifying a FAVAR-MGARCH model combining the main univariate and multivariate stochastic features of these series. The two latent factors move around a zero-mean short-term level and a non-stationary long-run equilibrium level, respectively. Few heterogeneous and mostly unrelated resources and commodities are considered (crude oil, copper, wheat, beef, aluminium and corn). Using IMF monthly prices over the 1980:1–2019:12 period, a Kalman Filter ML estimation is performed. Results suggest that, besides the time-varying price volatility, the last 15 years have seen a slight rise of the long-term nominal prices corresponding to a stabilization of the respective long-term real prices after a period of regular decline. Policy implications seem relevant and deserve further investigation.