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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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bastianin, Andrea & Manera, Matteo, 2018. "How Does Stock Market Volatility React To Oil Price Shocks?," Macroeconomic Dynamics, Cambridge University Press, vol. 22(03), pages 666-682, April.
    2. Bastianin, Andrea & Galeotti, Marzio & Manera, Matteo, 2017. "Oil supply shocks and economic growth in the Mediterranean," Energy Policy, Elsevier, vol. 110(C), pages 167-175.
    3. Francesco Trebbi & Eric Weese, 2019. "Insurgency and Small Wars: Estimation of Unobserved Coalition Structures," Econometrica, Econometric Society, vol. 87(2), pages 463-496, March.
    4. repec:ecb:ecbrbu:2018:0051: is not listed on IDEAS
    5. Ricardo T. Fernholz & Christoffer Koch, 2018. "The Rank Effect," Papers 1812.06000, arXiv.org.
    6. Ricardo T. Fernholz & Caleb Stroup, 2018. "Asset Price Distributions and Efficient Markets," Papers 1810.12840, arXiv.org.
    7. Ojeda-Joya, Jair & Jaulin-Mendez, Oscar & Bustos-Pelaez, Juan, 2015. "The Interdependence between Commodity-Price and GDP Cycles: A Frequency-Domain Approach," MPRA Paper 90403, University Library of Munich, Germany, revised 29 Nov 2018.
    8. repec:eee:eecrev:v:101:y:2018:i:c:p:157-180 is not listed on IDEAS
    9. repec:eee:jimfin:v:88:y:2018:i:c:p:54-78 is not listed on IDEAS
    10. Byrne, Joseph P & Sakemoto, Ryuta & Xu, Bing, 2017. "Commodity Price Co-movement: Heterogeneity and the Time Varying Impact of Fundamentals," MPRA Paper 80791, University Library of Munich, Germany.
    11. Delle Chiaie, Simona & Ferrara, Laurent & Giannone, Domenico, 2018. "Common factors of commodity prices," Research Bulletin, European Central Bank, vol. 51.
    12. Mthuli Ncube & Daniel Zerfu Gurara & Dawit B. Tessema, 2014. "Working Paper 205 - Volatility and Co-movement in Commodity Prices- New Evidence," Working Paper Series 2135, African Development Bank.
    13. Nathan Sussman & Osnat Zohar, 2016. "Has Inflation Targeting Become Less Credible? Oil Prices, Global Aggregate Demand and Inflation Expectations during the Global Financial Crisis," Bank of Israel Working Papers 2016.13, Bank of Israel.
    14. Kilian, Lutz & Zhou, Xiaoqing, 2018. "Modeling fluctuations in the global demand for commodities," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 54-78.
    15. repec:eee:jbfina:v:95:y:2018:i:c:p:82-96 is not listed on IDEAS

    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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