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Common Factors of Commodity Prices

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  • Delle Chiaie, Simona
  • Ferrara, Laurent
  • Giannone, Domenico

Abstract

In this paper we extract latent factors from a large cross-section of commodity prices, including fuel and non-fuel commodities. We decompose each commodity price series into a global (or common) component, block-specific components, and a purely idiosyncratic shock. We find that the bulk of the uctuations in commodity prices is well summarized by a single global factor. This global factor is closely related to fluctuations in global economic activity and its importance in explaining variations in commodity prices has increased since the beginning of the 2000s, especially for oil.

Suggested Citation

  • Delle Chiaie, Simona & Ferrara, Laurent & Giannone, Domenico, 2018. "Common Factors of Commodity Prices," CEPR Discussion Papers 12767, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12767
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    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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