The Co-Movement between Cotton and Polyester Prices
30 Pages Posted: 1 Apr 2005
Date Written: March 2005
This paper examines the price linkages among polyester (the dominant chemical fiber), cotton (the dominant natural fiber), and crude oil (the dominant energy commodity) based on monthly data between 1980 and 2002. The modeling framework incorporates several aspects of the unit root econometrics literature. We find that (i) there is strong co-movement between cotton and polyester prices, well above the co-movement observed between these two prices and prices of other primary commodities; (ii) crude oil prices have a stronger effect on polyester prices compared to cotton prices; (iii) price shocks originating in the polyester market are transmitted at much higher speed to the cotton market than vice-versa.
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