Common Factors of Commodity Prices

43 Pages Posted: 20 Nov 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

Centre for Economic Policy Research (CEPR)

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Date Written: November 16, 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 (November 16, 2017). ECB Working Paper No. 2112, Available at SSRN: https://ssrn.com/abstract=3072882

Simona Delle Chiaie (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Banque de France ( email )

Laurent Ferrara

Banque de France ( email )

Paris
France

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

200 Avenue de la République
92000

Domenico Giannone

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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