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Commodity Price Co-movement: Heterogeneity and the Time Varying Impact of Fundamentals

Joseph Byrne (), Ryuta Sakemoto and Bing Xu ()

MPRA Paper from University Library of Munich, Germany

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 materials, food and metals respond heterogeneously to these shocks.

Keywords: Commodity Prices; Co-movement; Dynamic Hierarchical Factor Models; Time Varying Parameter Factor Augmented VAR. (search for similar items in EconPapers)
JEL-codes: E3 F3 F4 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr and nep-mac
Date: 2017-07-12
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