Common Factors of Commodity Prices

37 Pages Posted: 3 Oct 2017

See all articles by Simona Delle Chiaie

Simona Delle Chiaie

European Central Bank; Banque de France

Laurent Ferrara

Banque de France; Université Paris Ouest - Nanterre, La Défense - EconomiX

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: September 2017

Abstract

In this paper we extract latent factors from a large cross-section of commodity prices, including fuel and non-fuel commodities. We decompose each commodity price series into a global (or common) component, block-specific components and a purely idiosyncratic shock. We find that the bulk of the fluctuations in commodity prices is well summarised by a single global factor. This global factor is closely related to fluctuations in global economic activity and its importance in explaining commodity price variations has increased since the 2000s, especially for oil prices.

Keywords: Commodity prices, Dynamic factor models, Forecasting

JEL Classification: C51, C53, Q02

Suggested Citation

Delle Chiaie, Simona and Ferrara, Laurent and Giannone, Domenico, Common Factors of Commodity Prices (September 2017). Banque de France Working Paper No. 645. Available at SSRN: https://ssrn.com/abstract=3046410 or http://dx.doi.org/10.2139/ssrn.3046410

Simona Delle Chiaie

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Banque de France ( email )

Laurent Ferrara (Contact Author)

Banque de France ( email )

Paris
France

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

200 Avenue de la République
92000

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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