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

Byrne, J.P., Fazio, G., and Fiess, N. (2013) Primary commodity prices: co-movements, common factors and fundamentals. Journal of Development Economics, 101 (C). pp. 16-26. ISSN 0304-3878 (doi:10.1016/j.jdeveco.2012.09.002)

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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.

Item Type:Article
Status:Published
Refereed:Yes
Glasgow Author(s):Fiess, Dr Norbert and Byrne, Dr Joseph and Fazio, Dr Giorgio
Authors: Byrne, J.P., Fazio, G., and Fiess, N.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Development Economics
ISSN:0304-3878

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