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
Article numberjbz017
JournalEuropean Review of Agricultural Economics
Early online date7 May 2019
DOIs
Publication statusE-pub ahead of print - 7 May 2019

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Commodity prices
Comovement
Time-varying
Commodities
Factors
Time-varying parameters
Metals
Raw materials
Primary commodities
Time variation
Global financial crisis
Specific factors
Demand shocks
Impulse response
VAR model
Food

Keywords

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

Cite this

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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.",
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