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Global Commodity Cycles and Linkages: A FAVAR Approach

23 Pages Posted: 19 Apr 2010  

Marco J. Lombardi

Bank for International Settlements (BIS) - Monetary and Economic Department

Chiara Osbat

European Central Bank (ECB)

Bernd Schnatz

European Central Bank (ECB)

Date Written: March 26, 2010

Abstract

In this paper we examine linkages across non-energy commodity price developments by means of a factor-augmented VAR model (FAVAR). From a set of non-energy commodity price series, we extract two factors, which we identify as common trends in metals and a food prices. These factors are included in a FAVAR model together with selected macroeconomic variables, which have been associated with developments in commodity prices. Impulse response functions confirm that exchange rates and of economic activity affect individual non-energy commodity prices, but we fail to find strong spillovers from oil to non-oil commodity prices or an impact of the interest rate. In addition, we find that individual commodity prices are affected by common trends captured by the food and metals factors.

Keywords: Oil Price, Commodity Prices, Exchange Rates, Globalisation, FAVAR

JEL Classification: E3, F3

Suggested Citation

Lombardi, Marco J. and Osbat, Chiara and Schnatz, Bernd, Global Commodity Cycles and Linkages: A FAVAR Approach (March 26, 2010). ECB Working Paper No. 1170. Available at SSRN: https://ssrn.com/abstract=1578968

Marco Jacopo Lombardi (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland
+41612809492 (Phone)

Chiara Osbat

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6821 (Phone)
+49 69 1344 6000 (Fax)

Bernd Schnatz

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
069-1344-6517 (Phone)

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