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The myth of co-moving commodity prices

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Abstract

There is a common perception that the prices of unrelated commodities move together. This paper re-examines this notion, using a measure of co-movement of economic time series called concordance. Concordance measures the proportion of time that the prices of two commodities are concurrently in the same boom period or same slump period. Using data on the prices of several unrelated commodities, the paper finds no evidence of co-movement in commodity prices. The results carry an important policy implication, as the study provides no support for earlier claims of irrational trading behaviour by participants in world commodity markets.

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File URL: http://www.rbnz.govt.nz/research_and_publications/discussion_papers/1999/g99_9.pdf
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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number G99/9.

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Length: 19p
Date of creation: Dec 1999
Date of revision:
Handle: RePEc:nzb:nzbdps:1999/09

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  1. C John McDermott & Alasdair Scott, 1999. "Concordance in business cycles," Reserve Bank of New Zealand Discussion Paper Series G99/7, Reserve Bank of New Zealand.
  2. Don Harding & Adrian Pagan, 1999. "Dissecting the Cycle," Melbourne Institute Working Paper Series wp1999n13, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  3. Deb, Partha & Trivedi, Pravin K & Varangis, Panayotis, 1996. "The Excess Co-movement of Commodity Prices Reconsidered," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(3), pages 275-91, May-June.
  4. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, July.
  5. Paul Cashin & C John McDermott & Alasdair Scott, 1999. "Booms and slumps in world commodity prices," Reserve Bank of New Zealand Discussion Paper Series G99/8, Reserve Bank of New Zealand.
  6. Palaskas, Theodosios B. & Varangis, Panos N., 1991. "Is there excess co-movement of primary commodity prices? A co-integration test," Policy Research Working Paper Series 758, The World Bank.
  7. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1, July.
  8. Pindyck, Robert S & Rotemberg, Julio J, 1990. "The Excess Co-movement of Commodity Prices," Economic Journal, Royal Economic Society, vol. 100(403), pages 1173-89, December.
  9. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  10. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
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