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Primary commodity prices: co-movements, common factors and fundamentals

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  • Joseph P. Byrne
  • Giorgio Fazio
  • Norbert Fiess

Abstract

The behavior of commodities is critical for developing and developed countries alike. This paper contributes to the empirical evidence on the co-movement and determinants of commodity prices. Using nonstationary panel methods, we document a statistically significant degree of co-movement due to a common factor. Within a Factor Augmented VAR approach, real interest rate and uncertainty, as postulated by a simple asset pricing model, are both found to be negatively related to this common factor. This evidence is robust to the inclusion of demand and supply shocks, which both positively impact on the co-movement of commodity prices.

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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2010_27.

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Date of creation: Nov 2010
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Handle: RePEc:gla:glaewp:2010_27

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Web page: http://www.gla.ac.uk/schools/business/research/
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Keywords: Commodity Prices; Panel Estimation; Factor Models;

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Cited by:
  1. Addison, Tony & Ghoshray, Atanu, 2013. "Agricultural commodity price shocks and their effect on growth in sub-Saharan Africa," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Hernandez, Manuel A. & Gardebroek, Cornelis, 2012. "Do energy prices stimulate food price volatility? Examining volatility transmission between US oil, ethanol and corn markets," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124583, Agricultural and Applied Economics Association.
  3. Ron Alquist & Olivier Coibion, 2013. "The Comovement in Commodity Prices: Sources and Implications," IMF Working Papers 13/140, International Monetary Fund.
  4. Śmiech, Sławomir, 2014. "Co-movement of commodity prices – results from dynamic time warping classification," MPRA Paper 56546, University Library of Munich, Germany.
  5. Libo Yin & Liyan Han, 2013. "Exogenous Shocks and Information Transmission in Global Copper Futures Markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 33(8), pages 724-751, 08.
  6. Yamada, Hiroshi & Yoon, Gawon, 2014. "When Grilli and Yang meet Prebisch and Singer: Piecewise linear trends in primary commodity prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 193-207.
  7. David Matesanz Gomez & Guillermo J. Ortega & Benno Torgler & German Dabat, 2011. "Co-movements in commodity prices: A note based on network analysis," CREMA Working Paper Series 2011-21, Center for Research in Economics, Management and the Arts (CREMA).
  8. West, Kenneth D. & Wong, Ka-Fu, 2014. "A factor model for co-movements of commodity prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 289-309.

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