The three co’s to jointly model commodity markets: co-production, co-consumption and co-trading

Amelie Schischke (), Patric Papenfuß () and Andreas Rathgeber ()
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Amelie Schischke: University of Augsburg
Patric Papenfuß: University of Augsburg
Andreas Rathgeber: University of Augsburg

Empirical Economics, 2024, vol. 66, issue 2, No 14, 883-925

Abstract: Abstract In this study, we develop a framework, based on a global vector autoregression (GVAR) model, to unite two perspectives on commodity markets, the commodity-specific, single-market-centered approach, investigating the micro- and macroeconomic drivers of commodity prices, and the market perspective, which observes joint movements of commodity prices on exchanges. Thereby, the GVAR model disentangles single market from inter-market effects, while simultaneously accounting for the impact of macroeconomic factors. We apply the framework to the six industrial metals markets, reflecting their interdependencies via their co-production, co-consumption, or co-trading relation. In particular, the numerous significant spillover effects in the cross-commodity dimension underline the importance of jointly modeling commodity markets. While the strong co-movement between industrial metal prices is represented exceptionally well by our framework, the microeconomic supply and demand attributes of the commodities have significant impact, within and across markets, even on price variables, highlighting their relevance in modern commodity market models. Moreover, we detect global shocks, e.g., an increase in global demand, affect each commodity market to a similar extent.

Keywords: Commodities; Metal markets; Co-movement; Microeconomic factors; Global vector autoregressive model (search for similar items in EconPapers)
JEL-codes: C32 C51 Q02 Q31 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00181-023-02471-1

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