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

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

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
Handle: RePEc:wbk:wbrwps:5578
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