Common dynamics of nonenergy commodity prices and their relation to uncertainty

Pilar Poncela, Eva Senra and Lya Sierra ()

Applied Economics, 2014, vol. 46, issue 30, 3724-3735

Abstract: The purpose of this article is to improve the empirical evidence on commodity prices in various dimensions. First, we attempt to identify the extent of comovements in 44 monthly nonenergy commodity price series in order to ascertain whether the increase in comovement is a recent term phenomenon. Second, we attempt to determine the role of uncertainty in determining comovements among nonenergy prices in the short run. We diagnose the overall comovement using a dynamic factor model estimated by principal components. A factor-augmented vector autoregressive approach is used to assess the relationship of fundamentals, financial and uncertainty variables with the comovement in commodity prices. We find a greater synchronization among raw materials since December 2003. Since that date, uncertainty has played an important role in determining short-run fluctuations in nonenergy raw material prices.

Date: 2014
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DOI: 10.1080/00036846.2014.939377

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