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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. 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, School of Economics and Finance, Queensland University of Technology 274, School of Economics and Finance, Queensland University of Technology.
  2. West, Kenneth D. & Wong, Ka-Fu, 2014. "A factor model for co-movements of commodity prices," Journal of International Money and Finance, Elsevier, Elsevier, vol. 42(C), pages 289-309.
  3. Addison, Tony & Ghoshray, Atanu, 2014. "Agricultural Commodity Price Shocks and their Effect on Growth in Sub-Saharan Africa," 88th Annual Conference, April 9-11, 2014, AgroParisTech, Paris, France, Agricultural Economics Society 169726, Agricultural Economics Society.
  4. Gardebroek, Cornelis & Hernandez, Manuel A., 2013. "Do energy prices stimulate food price volatility? Examining volatility transmission between US oil, ethanol and corn markets," Energy Economics, Elsevier, Elsevier, vol. 40(C), pages 119-129.
  5. de Nicola, Francesca & De Pace, Pierangelo & Hernandez, Manuel A., 2014. "Co-movement of major commodity price returns: A time-series assessment:," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 1354, International Food Policy Research Institute (IFPRI).
  6. Śmiech, Sławomir, 2014. "Co-movement of commodity prices – results from dynamic time warping classification," MPRA Paper 56546, University Library of Munich, Germany.
  7. Libo Yin & Liyan Han, 2013. "Exogenous Shocks and Information Transmission in Global Copper Futures Markets," Journal of Futures Markets, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 33(8), pages 724-751, 08.
  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, Elsevier, vol. 42(C), pages 193-207.
  9. Ron Alquist & Olivier Coibion, 2013. "The Comovement in Commodity Prices," IMF Working Papers, International Monetary Fund 13/140, International Monetary Fund.

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