Commodity Prices and Bric and G3 Liquidity: A SFAVEC Approach

40 Pages Posted: 7 Feb 2014 Last revised: 29 Dec 2014

See all articles by Ronald A. Ratti

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance

Joaquin Vespignani

University of Tasmania - School of Economics and Finance

Date Written: February 1, 2014

Abstract

This paper investigates the influence of liquidity in the major developed and major developing economies on commodity prices. Liquidity is taken to be M2. A novel finding is that unanticipated increases in the BRIC countries’ liquidity is associated with significant and persistent increases in commodity prices that are much larger than the effect of unanticipated increases in G3 liquidity, and the difference increases over time. Over 1999-2012 BRIC liquidity is strongly linked with global energy prices and global real activity whereas G3 liquidity is not. The impact of BRIC liquidity on mineral and metal prices is twice as large as that of G3 liquidity. Granger casualty goes from liquidity to commodity prices. BRIC and G3 liquidity and commodity prices are cointegrated. BRIC and G3 liquidity and global output and global prices are cointegrated. We construct a structural factor-augmented error correction (SFAVEC) model.

Keywords: Commodity Prices, BRIC countries, G3, Global liquidity, SFAVEC

JEL Classification: E31, E32, E51, F01, G15, Q43

Suggested Citation

Ratti, Ronald A. and Vespignani, Joaquin, Commodity Prices and Bric and G3 Liquidity: A SFAVEC Approach (February 1, 2014). CAMA Working Paper No. 13/2014. Available at SSRN: https://ssrn.com/abstract=2390989 or http://dx.doi.org/10.2139/ssrn.2390989

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance ( email )

Sydney, NSW 1797
Australia

Joaquin Vespignani (Contact Author)

University of Tasmania - School of Economics and Finance ( email )

Commerce Building,
Sandy Bay Campus
Sandy Bay, TAS, Tasmania 7005
Australia

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