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

Joseph P. Byrne*, Giorgio Fazio, Norbert Fiess

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

126 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)16-26
Number of pages11
JournalJournal of Development Economics
Volume101
Issue number1
DOIs
Publication statusPublished - 1 Mar 2013

Keywords

  • commodity prices
  • factor models
  • panel estimation
  • nonstationary panel methods

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