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

Listed author(s):
  • Joseph P. Byrne
  • Giorgio Fazio
  • Norbert Fiess

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, we 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 the co-movement of commodity prices.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2010_27.

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Date of creation: Nov 2010
Handle: RePEc:gla:glaewp:2010_27
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