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Commodity Price Co-Movement and Global Economic Activity

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  • Ron Alquist
  • Olivier Coibion

Abstract

Guided by a macroeconomic model in which non-energy commodity prices are endogenously determined, we apply a new factor-based identification strategy to decompose the historical sources of changes in commodity prices and global economic activity. The model yields a factor structure for commodity prices and identification conditions that provide the factors with an economic interpretation: one factor captures the combined contribution of shocks that affect commodity markets only through general-equilibrium forces. Applied to a cross-section of commodity prices since 1968, the theoretical restrictions are consistent with the data and yield structural interpretations of the common factors in commodity prices. Commodity-related shocks have contributed modestly to global economic fluctuations.

Suggested Citation

  • Ron Alquist & Olivier Coibion, 2014. "Commodity Price Co-Movement and Global Economic Activity," Staff Working Papers 14-32, Bank of Canada.
  • Handle: RePEc:bca:bocawp:14-32
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    More about this item

    Keywords

    Economic models; International topics;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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