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

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  • Byrne, Joseph P.
  • Fazio, Giorgio
  • Fiess, Norbert

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, the authors 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 co-movement of commodity prices.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5578.

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Date of creation: 01 Feb 2011
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Handle: RePEc:wbk:wbrwps:5578

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Keywords: Emerging Markets; Markets and Market Access; Commodities; Currencies and Exchange Rates; E-Business;

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Cited by:
  1. Śmiech, Sławomir, 2014. "Co-movement of commodity prices – results from dynamic time warping classification," MPRA Paper 56546, University Library of Munich, Germany.
  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. David M Gomez & Guillermo J Ortega & Benno Torgler & German Debat, 2011. "Co-movements in commodity prices: a note based on network analysis," School of Economics and Finance Discussion Papers and Working Papers Series 274, School of Economics and Finance, Queensland University of Technology.
  4. 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.
  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. 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).
  7. Ron Alquist & Olivier Coibion, 2013. "The Comovement in Commodity Prices," IMF Working Papers 13/140, International Monetary Fund.
  8. 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.

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