Commodity Prices: Structural Factors, Financial Markets and Non-Linear Dynamics
AbstractUp to the financial slump of the second quarter of 2008 commodity prices grew fast for several consecutive years in a highly volatile context. Recent commodity fluctuations have raised both policy concerns and a prolific academic debate. This paper offers a coherent theoretical and empirical framework aimed at improving our knowledge of those elements driving commodity prices in the long run once the so-called process of “financialization of commodities” is incorporated into the analysis. To this end, we employ a smooth transition vector autoregressive model which is suitable for testing the hypothesis derived from a heterogeneous agent model in the commodity markets. The empirical methodology allows us to distinguish among those variables that influence prices in the long run –obtaining in this way an “equilibrium” or “fundamental” price; and the mechanisms that generate, strengthen and eventually correct short run deviations with respect to that equilibrium. The results suggest that high discrepancies between spot and fundamental prices tend to be corrected relatively fast, while small misalignments tend to persist over time without any endogenous correcting force taking place.
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Bibliographic InfoPaper provided by Central Bank of Argentina, Economic Research Department in its series BCRA Working Paper Series with number 201050.
Length: 59 pages
Date of creation: 2010
Date of revision:
commodity prices; developing countries; financial markets; non-linear dynamics;
Other versions of this item:
- Diego Bastourre & Jorge Carrera & Javier Ibarlucia, 2010. "Commodity Prices: Structural Factors, Financial Markets and Non-Linear Dynamics," BCRA Paper Series, Central Bank of Argentina, Economic Research Department, number 06 edited by Jorge Carrera.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
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