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The Comovement in Commodity Prices: Sources and Implications
Author:
Mr. Ron Alquist null

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Mr. Olivier Coibion
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Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 140
Language:
English
Publication Date:
05 Jun 2013
DOI:
https://doi.org/10.5089/9781484378144.001
ISBN:
9781484378144
ISSN:
1018-5941
Pages:
63
Keywords:
WP; commodity price; palm oil; Commodity prices; comovement; factor models; commodity shock; commodity-price movement; productivity shock; factor loading; forecast evaluation period; Agricultural commodities; Commodity price fluctuations; Oil; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund