The Comovement in Commodity Prices: Sources and Implications

June 5, 2013

Preview Citation

Format: Chicago

Ron Alquist, and Olivier Coibion. The Comovement in Commodity Prices: Sources and Implications, (USA: International Monetary Fund, 2013) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We present a simple macroeconomic model with a continuum of primary commodities used in the production of the final good, such that the real prices of commodities have a factor structure. One factor captures the combined contribution of all aggregate shocks which have no direct effects on commodity markets other than through general equilibrium effects on output, while other factors represent direct commodity shocks. Thus, the factor structure provides a decomposition of underlying structural shocks. The theory also provides guidance on how empirical factors can be rotated to identify the structural factors. We apply factor analysis and the identification conditions implied by the model to a cross-section of real non-energy commodity prices. The theoretical restrictions implied by the model are consistent with the data and thus yield a structural interpretation of the common factors in commodity prices. The analysis suggests that commodity-related shocks have generally played a limited role in global business cycle fluctuations.

Subject: Agricultural commodities, Commodities, Commodity price fluctuations, Commodity prices, Oil, Prices

Keywords: Agricultural commodities, Commodity price, Commodity price fluctuations, Commodity prices, Commodity shock, Commodity-price movement, Comovement, Factor loading, Factor models, Forecast evaluation period, Global, Oil, Palm oil, Productivity shock, WP

Publication Details

Pages:

63
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/140
Stock No:

WPIEA2013140
ISBN:

9781484378144
ISSN:

1018-5941

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