Commodity price co-movement: heterogeneity and the time-varying impact of fundamentals

Joseph Paul Byrne, Ryuta Sakemoto, Bing Xu

Research output: Contribution to journalArticle

Abstract

This paper extends the topical literature on the co-movement and determinants of primary commodity prices, by considering heterogeneity in commodities and time variation in the impact of fundamentals. We account for heterogeneity by employing a dynamic hierarchical factor model, which decomposes commodities into global and sectoral factors. Using a time-varying parameter factor augmented VAR model, we shock global and sector-specific factors over time. We present plausible impulse responses to demand shocks, real interest rate shocks and to elevated risks during the global financial crisis. We also identify that agricultural raw materials, food and metals respond heterogeneously to these shocks.
Original languageEnglish
Pages (from-to)499-528
Number of pages30
JournalEuropean Review of Agricultural Economics
Volume47
Issue number2
Early online date7 May 2019
DOIs
Publication statusPublished - Apr 2020

Keywords

  • commodity prices
  • co-movement
  • dynamic hierarchical factor models
  • time varying parameter factor augmented VAR

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