Is there excess co-movement of primary commodity prices? A co-integration test
It is a common perception that primary commodity prices tend to move together. This perception is especially common among commodity traders who may justify an increase in the price of one commodity because the prices of other commodities have increased. This commodity price co-movement can be identified among commodities that seem unrelated in terms of production or consumption substitutability or complementarity. But there is no reason for believing that prices of unrelated commodities should move together, except for macroeconomic shocks affecting commodity markets in general. For example, in a recession commodity prices decline across the board because demand declines; and in periods of generalinflation commodity prices rise, partly because commodities provide a hedge against inflation. However, after accounting for macroeconomic shocks, is co-movement among prices still evident? In this paper, the authors test for co-movement and excess co-movement of primary commodity prices using the econometric tests of co-integration in time series and the resulting error-correction models (ECM). The ECMs will be used to examine the existence of short-run excess co-movement between commodity prices, taking into consideration the long-run relationship between them.
|Date of creation:||31 Aug 1991|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Durlauf, Steven N & Phillips, Peter C B, 1988.
"Trends versus Random Walks in Time Series Analysis,"
Econometric Society, vol. 56(6), pages 1333-54, November.
- Steven N. Durlauf & Peter C.B. Phillips, 1986. "Trends Versus Random Walks in Time Series Analysis," Cowles Foundation Discussion Papers 788, Cowles Foundation for Research in Economics, Yale University.
- Pindyck, Robert S & Rotemberg, Julio J, 1990.
"The Excess Co-movement of Commodity Prices,"
Royal Economic Society, vol. 100(403), pages 1173-89, December.
- Robert S. Pindyck & Julio J. Rotemberg, 1988. "The Excess Co-Movement of Commodity Prices," NBER Working Papers 2671, National Bureau of Economic Research, Inc.
- Pindyck, Robert S. & Rotemberg, Julio., 1987. "The excess co-movement of commodity prices," Working papers 1969-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Frankel, Jeffrey A & Hardouvelis, Gikas A, 1985. "Commodity Prices, Money Surprises and Fed Credibility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 425-38, November.
- Phillips, P.C.B., 1986.
"Understanding spurious regressions in econometrics,"
Journal of Econometrics,
Elsevier, vol. 33(3), pages 311-340, December.
- Peter C.B. Phillips, 1985. "Understanding Spurious Regressions in Econometrics," Cowles Foundation Discussion Papers 757, Cowles Foundation for Research in Economics, Yale University.
- Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
- Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
- Nickell, Stephen, 1985. "Error Correction, Partial Adjustment and All That: An Expository Note," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(2), pages 119-29, May.
- Sargan, John Denis & Bhargava, Alok, 1983. "Testing Residuals from Least Squares Regression for Being Generated by the Gaussian Random Walk," Econometrica, Econometric Society, vol. 51(1), pages 153-74, January.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-76, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
- Alogoskoufis, George & Martin, Christopher & Pittis, Nikitas, 1990. "Pricing and Product Market Structure in Open Economies: An Empirical Test," CEPR Discussion Papers 486, C.E.P.R. Discussion Papers.
- Palaskas, Theodosios & Varangis, Panos, 1989. "Primary commodity prices and macroeconomic variables : a long run relationship," Policy Research Working Paper Series 314, The World Bank.
- Kunst, Robert & Neusser, Klaus, 1990. "Cointegration in a Macroeconomic System," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(4), pages 351-65, Oct.-Dec..
- Ghura, Dhaneshwar, 1990. "How commodity prices respond to macroeconomic news," Policy Research Working Paper Series 354, The World Bank.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:758. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.