Using the Three Co's to Jointly Model Commodity Markets: Co-Production, Co-Consumption and Co-Trading
37 Pages Posted: 8 Jun 2021 Last revised: 1 Jul 2021
Date Written: June 29, 2021
In this study, we develop a framework, based on the Global Vector Autoregression Model (GVAR), to unite two differing perspectives on commodity markets, the single-market centered approach, investigating the micro- and macroeconomic drivers of commodity prices, as well as the inter-market perspective, which observes joint movements of commodity prices, beyond macroeconomic variables, on exchanges.
The strong co-movement between industrial metal prices is represented exceptionally well by our framework, which connects the markets using co-consumption, co-production and co-trading data.
While the microeconomic supply and demand attributes have no significant impact on individual market level, indicating a contradiction to the single-market centered approach, the cross-commodity dimension reveals these attributes are determining, even on price variables.
Keywords: commodity prices, co-movement, microeconomic factors, GVAR model
JEL Classification: Q02, Q31, C51, D53, G19
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