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Commodity Prices and BRIC and G3 Liquidity: A SFAVEC Approach

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  • Ronald A. Ratti
  • Joaquin L. Vespignani

Abstract

This paper investigates the influence of liquidity in the major developed and major developing economies on commodity prices. Liquidity is taken to be M2. A novel finding is that unanticipated increases in the BRIC countries’ liquidity is associated with significant and persistent increases in commodity prices that are much larger than the effect of unanticipated increases in G3 liquidity, and the difference increases over time. Over 1999-2012 BRIC liquidity is strongly linked with global energy prices and global real activity whereas G3 liquidity is not. The impact of BRIC liquidity on mineral and metal prices is twice as large as that of G3 liquidity. Granger casualty goes from liquidity to commodity prices. BRIC and G3 liquidity and commodity prices are cointegrated. BRIC and G3 liquidity and global output and global prices are cointegrated. We construct a structural factor-augmented error correction (SFAVEC) model.

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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-13.

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Length: 40 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:een:camaaa:2014-13

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Keywords: Commodity Prices; BRIC countries; G3; Global liquidity; SFAVEC;

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Cited by:
  1. Shawkat Hammoudeh & Duc Khuong Nguyen & Ricardo M. Sousa, 2014. "China’s Monetary Policy and Commodity Prices," Working Papers, Department of Research, Ipag Business School 2014-298, Department of Research, Ipag Business School.

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