On the long-term common movement of resource and commodity prices.A methodological proposal

Roberto Esposti

Resources Policy, 2021, vol. 72, issue C

Abstract: This paper investigates the long-term common movement of resource and commodity prices. Beyond its unquestionable policy relevance, detecting such common behaviour is empirically challenging. A novel methodological approach is proposed. It is based on a common latent factor hypothesis. This hypothesis is empirically investigated by specifying a FAVAR-MGARCH model combining the main univariate and multivariate stochastic features of these series. The two latent factors move around a zero-mean short-term level and a non-stationary long-run equilibrium level, respectively. Few heterogeneous and mostly unrelated resources and commodities are considered (crude oil, copper, wheat, beef, aluminium and corn). Using IMF monthly prices over the 1980:1–2019:12 period, a Kalman Filter ML estimation is performed. Results suggest that, besides the time-varying price volatility, the last 15 years have seen a slight rise of the long-term nominal prices corresponding to a stabilization of the respective long-term real prices after a period of regular decline. Policy implications seem relevant and deserve further investigation.

Keywords: Resource prices; State-space representation; FAVAR Models; Price volatility (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:72:y:2021:i:c:s0301420721000271

DOI: 10.1016/j.resourpol.2021.102010

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